On January 1, 2020, Ashe Company entered into a 5-year equipment lease (with no renewal options) requiring payments of $21,000, with the first payment due immediately. The lessor’s implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of 5 years. Lease classification is: Record JEs for first two years assuming lessee
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On January 1, 2020, Ashe Company entered into a 5-year equipment lease (with no renewal options) requiring payments of $21,000, with the first payment due immediately. The lessor’s implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of 5 years.
Lease classification is:
Record JEs for first two years assuming lessee
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- Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line methodDetermining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
- Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Marigold Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $70,000. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, none of which is guaranteed. 3. 4. The agreement requires equal annual rental payments of $21,827.58 to the lessor, beginning on January 1, 2020. 5. The lessee's incremental borrowing rate is 4%. The lessor's implicit rate is 3% and is unknown to the lessee. 6. Marigold uses the straight-line depreciation method for all equipment. Click here to view factor tables. Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this…Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Shamrock Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $59,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $4,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $19,211 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. 6. Shamrock uses the straight-line depreciation method for all equipment. Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Correct…Delray Leasing Company signs an agreement on January 1, 2020, to lease equipment to Swifty Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated economic life of 6years. 2. The fair value of the asset at January 1, 2020, is $118,700. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $22,600, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $26,886.99 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 6%. The lessor’s implicit rate is 5% and is unknown to the lessee. 6. Swifty uses the straight-line depreciation method for all equipment. Click here to view factor tables.Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all…
- Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Whispering Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $74,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $22,886.45 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee. 6. Whispering uses the straight-line depreciation method for all equipment. Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this…Bulls, Inc. leases a piece of equipment to Bucks Company on January 1, 2020. The contract stipulates a lease term of 5 years, with equal annual rental payments of $4,523 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $30,000, a book value of $27,000, and a useful life of 8 years. At the end of the lease term, Bulls expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Assuming Bulls wants to earn a 4% return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January 1, 2020.On January 1 of Year 1, Ashe Company entered into a five-year equipment lease (with no renewal options) requiring payments of $10,000, with the first payment due immediately. The lessor's implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of five years. a. How would Ashe Company classify the lease? AnswerFinance leaseOperating lease b. Prepare a schedule of the lease liability for the 5-year lease term. • Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
- Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Nash Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $74,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $22,886.45 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee. 6. Nash uses the straight-line depreciation method for all equipment. Click here to view factor tables. https://education.wiley.com/wpng/api/v1/content/resource/8e661f8d-53ec-410b-b565-ac7e29fc0290Prepare all of the journal…Castle Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Jan Way Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Jan Way has the option to purchase the equipment for $16,000 upon termination of the lease. It is not reasonably certain that Jan Way will exercise this option. 2. The equipment has a cost of $120,000 and fair value of $160,000 to Castle Leasing. The useful economic life is 2 years, with a residual value of $16,000. 3. Castle Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Castle Leasing is probable. Prepare the journal entries on the books of Castle Leasing to reflect the payments received under the lease and to recognize income for the years 2020 and 2021Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Nash Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. The fair value of the asset at January 1. 2020, is $71,000. 2. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $12.000, none of which is guaranteed. The agreement requires equal annual rental payments of $20,600.52 to the lessor, beginning on January 1, 2020. The lessee's incremental borrowing rate is 4%. The lessor's implicit rate is 3% and is unknown to the lessee. 4. 5. 6. Nash uses the straight-line depreciation method for all equipment. Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting…