Steak Town Company leased equipment for its nine-year useful life, agreeing to pay P500,000 at the start of the lease term on December 31, 2020 and P500,000 annually on each December 31 for the next eight years. The present value on December 31, 2020 of the nine lease payments over the lease term, using the 10% rate implicit in the lease (known by Steak Town), was P3,165,000. What amount should Steak Town report as lease liability and interest expense, respectively in their December 31, 2022 financial statements?

Steak Town Company leased equipment for its nine-year useful life, agreeing to pay P500,000 at the start of the lease term on December 31, 2020 and P500,000 annually on each December 31 for the next eight years. The present value on December 31, 2020 of the nine lease payments over the lease term, using the 10% rate implicit in the lease (known by Steak Town), was P3,165,000. What amount should Steak Town report as lease liability and interest expense, respectively in their December 31, 2022 financial statements?

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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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?
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.
Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Dream Company leased equipment for its nine-year economic life, agreeing to pay P500,000 at the start of the lease on December 31, 2019 and P500,000 annually on each December 31 for the next eight years. The present value on December 31, 2019 of the nine lease payments over the lease term using the rate implicit in the lease which Dream knows to be 10% was P3,165,000. The December 31, 2019 present value of the lease payments using Dream's incremental borrowing rate of 12% was P2,985,000. Dream made a timely second lease payment. What amount should Dream report as finance liability in its December 31, 2020 statement of financial position? 2,431,500 None 3,500,000 2,283,000
On January 1, 2018, This Co. leased an asset with fair value of P800,000 from Joyce Co. for a lease term of 6 years. The lease specifies equal annual payments beginning on January 1, 2018. The lessee guarantees a P100,000 residual value of the asset at the end of the lease term. The rate implicit on the lease is 9%. How much is the annual lease payment?
Neal Company entered into a nine-year capital lease on a warehouse on December 31, 2021. Lease payments of P520,000, which includes executory cost of P20,000 is due annually, beginning on December 31, 2022, and every December 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract was estimated at the present value of P200,000. The interest rate implicit in the lease if 9%. The present value of an ordinary annuity of 1 for nine years at 9% is 5.6. Question: - What amount should be reported as lease liability on December 31, 2021? A. 2,800,000B. 2,912,000C. 4,500,000D. 4,680,000 - What amount should be recognized initially as cost of the right of use asset? A. 2,800,000B. 3,000,000C. 3,112,000D. 4,700,000
On December 31, 2020, Roe Company leased a machine from Colt Company for a five-year period Equal annual payments under the lease P1,050,000 including P50,000 annual executory cost and are due on December 31 of each year. The first payment was made on December 31, 2020, and the second payment was made on December 31, 2021. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was P4,170.000.On December 31, 2021, what amount should be reported as lease liability?
On January 1, 2022, Edward Corporation (lessor) enters into a ten-year lease of equipment to Kirk Corporation (lessee). The equipment has estimated useful life of 15 years. Lease payments are P380,000 per year all payable at the beginning of each year. The fair value of the leased asset on this date P3.132.161. The rate implicit in the lease is 6%. Kirk Guaranteed a residual value of P300,000. 8. How much interest income should Edward recognized in its December 31, 2022 statement of comprehensive income? 165,130 111,968 139,186 125,942 15. Assuming that the lease is a sales type lease and the cost of the asset is P2.500,000 and the residual value is unguaranteed, how much is the balance of lease receivable as of December 31, 2022 and the gross profit? P2,686,921 and P799,681 P2,917,291and P632,161 P2,739,722 and P799,681 P2,955,789 and P632,161
On December 31, 2021, Rafferty Company leased equipment under a finance lease. Annual lease payments of P200,000 are due December 31 for 10 years. The useful life of the equipment is 10 years, and the interest rate implicit in the lease is 10%. The finance lease obligation was recorded onDecember 31, 2021, at P1,350,000, and the first lease payment was made on that date. Question: What amount should be includedc in current liabilities on December 31, 2021 in relation to the lease? A. 65,000 B. 85,000 C. 115,000 D. 200,000
On January 1, 2020, Narra Company leased an asset for a term of six years. Annual rentals of P500,000 is payable every yearend. The cost of the leased asset is P2,100,000. Initial direct costs paid by Bacarra totaled P6,360. The asset will revert to Bacarra at the end of the lease term, when its residual value would amount to P100,000. Assume it is a direct finance lease with an implicit rate of 12% and the residual value is guaranteed, how much is the interest income for 2020? Assume it is a direct finance lease with an implicit rate of 12% and the residual value is unguaranteed, how much is the net lease receivable as of yearend 2022? Assume it is a sales-type lease with an implicit rate of 10% and the residual value is guaranteed, how much should be credited to sales resulting from the lease? Assume it is a sales-type lease with an implicit rate of 10% and the residual value is guaranteed, how much is cost of sales resulting from the lease? Assume it is a sales-type lease with an…
On January 1, 2022, Edward Corporation (lessor) enters into a ten-year lease of equipment to Kirk Corporation (lessee). The equipment has estimated useful life of 15 years. Lease payments are P380,000 per year all payable at the beginning of each year. The fair value of the leased asset on this date P3,132,161. The rate implicit in the lease is 6%. Kirk Guaranteed a residual value of P300,000. How much interest income should Edward recognized in its December 31, 2022 statement of comprehensive income?
On January 1, 2020, Tsaritza Co. (lessee) entered into a contract of lease with Snezhnaya Co. (lessor) that allows Tsaritza the right to use machinery for 5 years. The machinery had a useful life of 4 years.The following terms were agreed on January 1, 2020:• P500,000 annual rental every December 31 of the year starting 2020 for 5 payments in total.• Implicit rate of of the lease was 10%.• Tsaritza’s incremental borrowing rate on agreement date was 12%.• Tsaritza will guaranteed that at the expiration of the lease term the residual value of the asset will be at P300,000.• Initial direct cost paid by Tsaritza were P200,000.• Lease incentives amounted to P50,000.On December 31, 2024, the machinery had a fair value of P200,000, Tsaritza Co returned the leased asset and settled with Snezhnaya Co. (use 4 decimal places for PV factors)Requirements: (round off any peso value to the nearest one peso to eliminate centavos, if any)a. What amount of lease liability will be recorded by Tsaritza on…