Oak Co. leased equipment for its entire 9-year useful life, agreeing to pay $50,000 at the start of the lease term on December 31, year 1 and $50,000 annually on each December 31 for the next 8 years. Oak paid $3,000 in am initial direct costs at lease inception. The present value on December 31, year 1 of the nine lease payments over the lease term, using the rate implicit in the lease, which Oak knows to be 10%, was $316,500. The December 31, year 1 present value of the lease payments using Oak's incremental borrowing rate of 12% was $298,500. Oak accounts for the finance lease under GAAP and uses straight-line depreciation. What amount should oak report as ROU asset on its December 31, year 2 balance sheet? 265,333 281,333 284,000 319,500

Oak Co. leased equipment for its entire 9-year useful life, agreeing to pay $50,000 at the start of the lease term on December 31, year 1 and $50,000 annually on each December 31 for the next 8 years. Oak paid $3,000 in am initial direct costs at lease inception. The present value on December 31, year 1 of the nine lease payments over the lease term, using the rate implicit in the lease, which Oak knows to be 10%, was $316,500. The December 31, year 1 present value of the lease payments using Oak's incremental borrowing rate of 12% was $298,500. Oak accounts for the finance lease under GAAP and uses straight-line depreciation. What amount should oak report as ROU asset on its December 31, year 2 balance sheet? 265,333 281,333 284,000 319,500

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 1P: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases...

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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).
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.
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.
On January 1, Year 1, Tucker Company leases equipment from Franz Inc. over three years of the equipment's five-year estimated useful life. Franz acquired the asset for $431,213 and normally utilizes an 8% interest rate for these types of transactions. The present value of the lease payments is $357,710. The annual lease payment is $100,000; the first payment is due on January 1, Year 1. Tucker should recognize the first lease payment by
At the beginning of the current year, CPA Co, leased a machine to CMA Co. The machine had an original cost of P6,000,000. The lease term was five years and the implicit interest rate on the lease was 15%. The lease is properly classified as a direct financing lease. The annual payments of P1,750,000 are made each December 31. The machine reverts to lessor at the end of the lease term, at which the residual value of the machine will be P275,000 which is unguaranteed.Required: Write answer without peso sign withcommas.What is the total financial revenue?
A lessee company signed a lease for equipment from a lessor on January 1, Year 1. The lease requires equal rental payments of $18,820 at the beginning of each year of the term. The PV of the lease payments is $108,950. The company pays all executory costs directly to third parties. The appropriate interest rate is 8.65%. Assume IFRS 16 applies. Both the lessor and lessee have December 31 year ends. How much wil be the balance of the Lease Liability in the lessee's books at the end of Year 1 after all adjusting entries assuming (1) the fair value of the equipment equals the PV of the lease payments and (2) any interest is accrued directly to the Lease Liability? 1. $88,134 2. $90,582 3. $93,030 4. $95,478 5. $97,926
Flint Company leased equipment to Land Company for a ﬁve-year period. Flint paid $9,393 for the equipment, which equals its current carrying value (with estimated useful life of ﬁve years). The lease commenced on January 1 of Year 1. Flint uses a target rate of return of 8% in all lease contracts. The ﬁrst payment was received on January 1 of Year 1, and Flint’s accounting periods end on December 31. The lease contract contains a purchase option stating that Land Company can purchase the equipment for $800 on January 1 of Year 6, at which time its residual value is estimated to be $1,300. It is reasonably certain that Land Company will exercise the purchase option at the end of the lease term. a. Compute the annual payment calculated by the lessor.
Do the journal entries for the following transactions A lessee enters into a three-year lease and agrees to make the following annual payments at the end of each year: $10,000 in year 1, $15,000 in year 2, and $20,000 in year 3. The initial measurement of the right-of-use (ROU) asset and liability to make lease payments is $38,000 at a discount rate of 8%. At the end of the year, the lessee paid the first installement and recorded the amortisation expense and the interest expense. Amortization expense: $12,667 ($38,000/3) Interest expense: $3,038 ($38,000*.08). Lease liability: ? (You must calculate.)
Ground Company leased a parcel of land to Sparks Company for six years. The lease agreement states that theSparks will pay rental of P200,000 on the first year, to be increased by P10,000 annually. There is also a provision that Ground is to receive a lease bonus of P30,000 and a security deposit of P60,000, refundable atthe end of the lease contract. How much total amount reported in the yearend Balance Sheet of Sparks Company for the third year relating to the lease? [Indicate whether it is an asset or liability] How much total amount reported in the yearend Balance Sheet of Ground Company for the fourth year relating to the lease? [Indicate whether it is an asset or liability]
Elliott Brothers enters into a lease agreement with Central Leasing for a piece of equipment. The terms of the 5-year lease state that payments of $19,500 will be made annually on January 1, commencing with the date that the lease begins. The lease contains a provision that Elliott Brothers may purchase the equipment at the end of the lease period for $19,000, which is well below the expected fair value at the end of the lease. As such, it is expected that Elliott Brothers will exercise this option. The implicit rate in the lease is 9%. If this lease is treated as a finance lease for Elliott Brothers, at what value will the right-of-use asset be recorded? Group of answer choices $12,349 $95,024 $75,848 $82,675
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