Three different lease transactions are presented below for Cullumber Enterprises. Assume that all lease transactions start on January 1, 2024. Cull umber does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Cullumber Enterprises prepares its financial statements using ASPE. Assume that Cullumber Enterprises has purchased the vehicle for $96, 600 instead of leasing it and that the amount borrowed was $96,600 at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. /List a/l debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. ff na entry is required, select "No Entry for the account titles and enter O for the amounts_ Record entries in the order displayed in the problem statement)
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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.Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.Determining 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.
- 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).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. Assume that Garvey is required to make payments on December 31 each year.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.
- Three different lease transactions are presented below for Pharoah Enterprises. Assume that all lease transactions start on January 1, 2024. Pharoah does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Pharoah Enterprises prepares its financial statements using ASPE. Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Manufacturing Equipment 5 years 15 years $16,800 $117,600 $75,852 3.5% Office Equipment 6 years 3 years 7 years 6 years $18,000 $4,680 $102,000 $21,000 $94,356 $12,060 Vehicles 4% 8% Assume that Pharoah Enterprises has purchased the vehicle for $102,000 instead of leasing it and that the amount borrowed was $102,000 at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. (List all debit entries before credit entries. Credit…Three different lease transactions are presented below for Sunland Enterprises. Assume that all lease transactions start on January 1, 2024. Sunland does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Sunland Enterprises prepares its financial statements using ASPE Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Date Account Titles Manufacturing Equipment 5 years 15 years $17,400 $121,800 (To record interest payment) Texthonk and Media $78.564 3.5% (To record depreciation expense) Office Equipment 6 years 3 years 7 years 6 years $18,600 $4,860 $105,600 $21,750 $12.522 Assume that Sunland Enterprises has purchased the vehicle for $105.600 instead of leasing it and that the amount borrowed was $105,600 at 8% Interest, with interest payable at the end of each year, Prepare the…Three different lease transactions are presented below for Blossom Enterprises. Assume that all lease transactions start on January 1, 2024. Blossom does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Blossom Enterprises prepares its financial statements using ASPE. Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Date Jan. 1 Dec. 31 v Jan. 1 Account Titles Assume that Blossom Enterprises has purchased the vehicle for $72,600 instead of leasing it and that the amount borrowed was $72,600 at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the…
- Three different lease transactions are presented below for Crane Enterprises. Assume that all lease transactions start on January 1, 2024. Crane does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Crane Enterprises prepares its financial statements using ASPE. Lease termi Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Manufacturing Equipment 5 years 15 years $12,300 $86,400 $57,479 3.5% Vehicles 6 years 7 years $13,140 $75,000 $71,637 Office Equipment 3 years 6 years $3,420 $15,450 $9,519 8%On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 10 years. • The lease does not contain a renewal or bargain purchase option. • The annual rentals are $4,050, payable at the beginning of each year. • Baltimore agrees to pay all executory costs directly to a third party. • The cost of the equipment to the lessor is $25,266.10. The fair value of the equipment is $26,800. • Amity incurs initial direct costs of $1,380.75. • The interest rate implicit in the lease is 12%. • Amity expects to collect all lease payments from Baltimore. • Amity estimates that the fair value at the end of the lease term will be $3,160 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. Required: Prepare the journal entries for Amity for 2019.Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The following information relates to the lease agreement.(Assume the accounting period ends on December 31.)a) Calculate the amount of the annual rental payment required. b) Compute the value of the lease liability to Fat Choi Furniture. c) Prepare an 8-year lease amortization schedule for the lessee, Fat Choi Furniture.