non-cancelable lease
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2.
Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms:
- Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.
- The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
- The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
- The tractor has a six-year economic life.
- Morey has an excellent credit rating.
- Equity offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer.
Which of the following entries will Morey prepare to record the lease of the tractor on January 1, 20X1?
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DR Rent expense 26,379.74 CR Cash 26,379.74
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DR Right-of-use asset 102,607.95 CR Finance lease liability 102,607.95
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DR Right-of-use asset 131,898.70 CR Cash 26,379.74 CR Finance lease liability 105,518.96
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DR Right-of-use asset 131,898.70 CR Cash 131,898.70
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- Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms: Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year. The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor. The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term. The tractor has a six-year economic life. Morey has an excellent credit rating. Equity offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer. For Equity Leasing, this is treated as a(n) Multiple Choice operating lease. short-term lease. finance capital lease. sales-type capital lease.6. Explosive Leasing acquires equipment and leases it to customers under long-term sales-type leases. Explosive earns interest under these arrangements at a 6% annual rate. Explosive purchased a device and then leased it for $342,400 under an arrangement that specified annual payments to be received for five years, beginning at the commencement of the lease. The lessee had the option to purchase the device at the end of the lease term for $49,650 when it was expected to have a residual value of $99,300. Calculate the amount of the annual lease payments. (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)The present value of $1: n = 5, i = 6% is 0.74726.The present value of an ordinary annuity of $1: n = 5, i = 6% is 4.21236.The present value of an annuity due of $1: n = 5, i = 6% is 4.46511.On January 1, 20x1, Entity Y leases out a piece of equipment to Entity X. Information on the lease is as follows: Lease term 3 years Annual rent payable at the end of each year 100,000 Interest rate implicit in the lease 10% The lease provides for the transfer of ownership of the equipment to the lessee at the end of the lease term. What total amount of finance income will Entity Y recognize over the lease term?
- 5. On June 30, year 1, Menchen, Inc. leased equipment from Davis Leasing. The lease agreement calls for Menchen to make semiannual lease payments of $ 400, 500 over a seven- year lease term, on June 30 and December 31. This is also the assets useful life. The first payment was due immediately on June 30, year 1. The interest rate used is the incremental borrowing rate of 11%. The cost of the asset to Davis was $ 4,051,891 using a factor of 10.11708. a. using an amortization table what amount would Davis show on its balance sheet on December 31, year 1? b. what amount would Davis show on its income statement on December 31,year 1?2. The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the…2. The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period…
- 2... The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the…Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year. The fair value of the tractor is $100,000. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term. The tractor has a six-year economic life. Hatfield has an excellent credit rating. Star offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer. With which one of the following entries will Hatfield prepare to record the payment on December 31, 20X1? Multiple Choice DR Finance lease liability 16,379.74 DR Interest expense 10,000.00 CR Cash 26,379.74 DR Finance lease liability 10,000.00 DR Interest expense 16,379.74 CR Cash 26,379.74 DR Finance lease liability 26,379.74 CR Cash 26,379.74 DR Interest expense 26,379.74 CR Cash 26,379.74On January 1, 20x1, Entity X (Customer) enters into a 4-year lease of equipment with Entity Y (supplier). The annual rent is P220,000 payable at the END of each year. The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing rate is 12%. Entity X uses the straight-line method of depreciation. The relevant present value factors are as follows: PV of an ordinary annuity of P1 @ 10%, n=4 3.16987 PV of an ordinary annuity of P1 @ 12%, n=4 3.03735 Requirements: 1.How much is the lease liability to be recognized by Entity X on initial recognition? 2.How much is the annual depreciation on the right-of-use asset? 3.Assume the lease is a finance lease. How much is the net investment in the lease to be recognized by Entity Y on initial recognition? 4.Assume the lease is an operating lease. How much is the lease (rent) income in 20x1? 5.Assume the lease qualifies for accounting as…
- Ericson Company leased an asset to another entity. The cost of the asset was P7,994,000. Terms of the lease specify 4-year life for the lease, an annual interest rate of 15% and 4 year-end rental payments. The lease qualifies as a finance lease and is classified as a direct financing lease. The lease provides for a transfer of title to the lessee at the end of the lease term. After the fourth year, the residual value is estimated to be P1,000,000. In negotiating and arranging the lease, Ericson Company incurred initial direct costs of P164,360. 1. What is the annual rental payment? 2. The interest income of Ericson for the second year of the lease term is:The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 11,500 Year 2: $ 16,500 Year 3: $ 21,500 Year 4: $ 26,500 An appropriate discount rate is 7 percentage, yielding a present value of $62,927. a-5. If the lease is an operating lease, what will be the amortization expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset? b-2. If the lease is a finance lease, what will be the initial value of the lease liability? b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1?…Ericson Company leased an asset to another entity. The o COst The lease provided for a transfer of title to the lessee at the of the asset was P7,994,000. Terms of the lease specify and four year-end rental payments. The lease qualified as a four-year life for the lease, an annual interest rate of 15%, direct financing lease... The lease provided for a transfer of title to the lessee end of the lease term. After the fourth year, the residual value was estimated P1,000,000. at The PV of 1 at 15% for 4 periods is .572, and the PV of a. ordinary annuity of 1 at 15% for 4 periods is 2.855. What is the annual rental payment? a. 2,000,000 b. 3,000,350 c. 2,800,000 d. 2,599,650
