Saturday Corporation is in the business of leasing new sophisticated equipment. The lessor expects a 12% return on net investment. All leases are classified as direct lease. At the end of the lease term, the equipment will revert to the lessor. At the beginning of current year, an equipment is leased to a lessee with the following information: Cost of equipment to the lessor P5,000,000 Residual value — unguaranteed 600,000 Annual rental payable in advance at the beginning of each year 900,000 Initial direct cost incurred by the lessor 250,000 Useful life and lease term 8 years Implicit interest rate 12% What is the total unearned interest income?

Saturday Corporation is in the business of leasing new sophisticated equipment. The lessor expects a 12% return on net investment. All leases are classified as direct lease. At the end of the lease term, the equipment will revert to the lessor. At the beginning of current year, an equipment is leased to a lessee with the following information: Cost of equipment to the lessor P5,000,000 Residual value — unguaranteed 600,000 Annual rental payable in advance at the beginning of each year 900,000 Initial direct cost incurred by the lessor 250,000 Useful life and lease term 8 years Implicit interest rate 12% What is the total unearned interest income?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...

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Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
Oden Company is in the business of leasing new sophisticated equipment. As lessor, Oden Company expects a 12% return on the net investment.All leases are classified as direct financing. At the end of the lease term, the equipment will revert to Oden Company.On January 1, 2020, an equipment is leased to a lessee with the following information. Cost of equipment to Oden 5,250,000Residual value-unguaranteed 600,000Annual rental payable in advance 900,000Useful life and lease term 8 yearsImplicit interest rate 12 %First lease payment Jan 1, 2020Required:1. Compute the total financial revenue2. Prepare a table amortization for the lease receivable and interest income.
ABC Co. is engaged in the leasing business. As a lessor, ABC expects a 12% return. At the end of the lease term, the leased asset will revert to ABC Co.On Jan. 1, 2022, an equipment is leased to another entity under a direct financing lease.The following are the terms of the lease:Cost of equipment to ABC - P4.4M;Unguaranteed residual value - P320,000;Annual rental payable in advance - P767,600;Useful life and lease term - 8 years;Interest rate implicit in the lease - 12%;First lease payment - January 1, 2022PV factors:PV of 1 at 12% for 8 periods - 0.40;PV of an ordinary annuity of 1 at 12% for 8 periods - 4.97;PV of an ordinary annuity of 1 at 12% for 7 periods - 4.56;PV of an annuity of 1 in advance at 12% for 8 periods - 5.56What is the unearned interest income on January 1, 2022?
ABC Co. is engaged in the leasing business. As a lessor, ABC expects a 12% return. At the end of the lease term, the leased asset will revert to ABC Co. On Jan. 1, 2022, an equipment is leased to another entity under a direct financing lease. The following are the terms of the lease: Cost of equipment to ABC-P4.4M Unguaranteed residual value - P320,000; Annual rental payable in advance - P767,600; Useful life and lease term- 8 years: Interest rate implicit in the lease - 12% First lease payment - January 1, 2022 PV factors: PV of 1 at 12% for 8 periods - 0.40; PV of an ordinary annuity of at 12% for 8 periods - 4.97; PV of an ordinary annuity of 1 at 12% for 7 periods - 4.56 PV of an annuity of 1 in advance at 12% for 8 periods -5.56 What is the unearned interest income on January 1, 2022? 1,293,200 1,420,800 1,740,800 2,060,800 1,228,000
AEI Company is in the business of leasing new sophisticated equipment. At the beginning of current year, an equipment was delivered to a lessee under a direct financing lease with the following provisions: Cost of equipment 3,390,000 Annual rental payable at the end of year 600,000 Useful life and lease term 10 years Implicit interest rate 12% Present value of an ordinary annuity of 1 at 12% for 10 years 5.650 Present value of an ordinary annuity of 1 at 11% for 10 years 5.889 The entity incurred and paid initial direct costs of P143,400 in negotiating and arranging the lease. The equipment will revert to AEI Company at the end of the lease. Required: 1. Compute the…
Juliet Company is in the business for leasing new sophisticated equipment. As lessor, Juliet Company expects a 12% return on its net investment. All leases are classified as direct financing lease. At the end of the lease term, the equipment will revert to Juliet Company. On January 1, 2020, an equipment is leased to a lessee with the following information: Cost of equipment to Juliet Company Residual value – unguaranteed Annual rental payable in advance P5,250,000 P600,000 P900,000 Useful life and lease term 8 years 12% Implicit lease payment First lease payment January 1, 2020 What is the unearned interest income on January 1, 2020? What is the interest income that should be recognized for 2020?
The information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning ofeach year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term,guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions(iii)Record the first year’s depreciation on Telsan Company’s books. (iv) Record interest expense and lease liability for Telsan Company for the year ending December 31, 2020. (v) Discuss the nature of this lease to Simmonds Leasing Company.
The information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning ofeach year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term,guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions(i) What is the lease liability for Telsan Company? ii) Record the lease on Telsan Company’s books at the date of inception. (iii)Record the first year’s depreciation on Telsan Company’s books. (iv) Record interest expense and lease liability for Telsan Company for…
Camia Company is in the business of leasing new sophisticated equipment. As lessor, Camia expects a 12% return on its net investment. All leases are classified as a direct financing lease. At the end of the lease term, the equipment will revert to Camia Company. On January 1, 2010 an equipment is leased to a lessee with the following information.Cost of equipment to Camia-5,500,000Residual value – unguaranteed-400,000Annual rental payable in advance-959,500Useful life and lease term-8 yearsImplicit interest rate-12%First lease payment-January 1, 2010What is the total financial income to be recognized over the lease term? a. 2,576,000 b. 2,176,000 c. 1,776,000 d. 1,616,500
Fitbit Ltd has leased a machine on the following terms: Date of entering lease 1 July 2019 Duration of lease 5 years Life of asset 6 years Unguaranteed residual value $40,000 Lease payments inception (at the start) $60,000 Annual payments (5) $65,000 Implied rate 11.0 %. Please assist to determine the Fair Value (rounded off) of the leased asset. Thanks

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Cost of equipment to the lessor	P5,000,000
Residual value — unguaranteed	600,000
Annual rental payable in advance at the beginning of each year	900,000
Initial direct cost incurred by the lessor	250,000
Useful life and lease term	8 years
Implicit interest rate	12%