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At what amount should the lease liability be recognized at January 1, 2020, after making the first payment of P260,000 to the lessor?
- On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910Determining 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.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.
- 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.On January 1, 2021, Veronica Company negotiated a 15-year lease for a building with useful life of 20 years. Before occupancy, the lessee incurred leasehold improvement of P600,000 with useful life 5 years. The lessee is required to restore the building upon expiration of the lease. The present value of estimated cost of restoration is P644,000 discounted at 7%. Annual payments of P1,000,000 are payable to the lessor on December 31 of each of the 15 years of the lease term. The lease was negotiated to assure the lessor a 10% rate of return. PV of an ordinary annuity of 1 at 10% for 15 periods PV of an annuity of 1 in advance at 10% for 15 periods 7.606 8.367 Required: Prepare journal entries on the books of Veronica Company for 2021.
- Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year. 2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom. 3. Davis agrees to pay all executory costs directly to a third party. 4. The interest rate implicit in the lease is 14%. 5. The initial direct costs are insignificant and assumed to be zero. 6. It is probable that Edom will collect the lease payments. Required: 1 Prepare a table summarizing the lease receipts and interest income earned by Edom. 2. Prepare a table showing the accretion of the unguaranteed residual asset. 3.…Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year. 2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has a residual value of $20,000 which is guaranteed by Davis Company (the lessee). 3. Davis agrees to pay all executory costs directly to a third party. 4. The interest rate implicit in the lease is 14%. 5. The initial direct costs are insignificant and assumed to be zero. 6. It is probable that Edom will collect the lease payments. Required: 1. Next Level Assuming that the lease is a sales-type lease, calculate the selling price. 2. Prepare a table summarizing the lease receipts and interest income earned by…Saludares Company leased a machinery on January 1, 2021 with the following information: Annual rental payable at the end of each year is P1,000,000. A P300,000 payment is made to the lessor to obtain a long-term lease. At the end of the lease term, dismantling and restoring the machinery is required by contract. The present value of this obligation is P330,000. Annual executory costs paid by the lessee amount to P50,000. Lease term is 4 years and the useful life of the machinery is 8 years. The implicit rate is 10%. The PV of an ordinary annuity of 1 at 10% for 4 periods is 3.17 and the PV of 1 at 10% for 4 periods is 0.68. 1. What is the depreciation for 2021?2. What is the lease liability on December 31, 2021?
- Indiana Ltd decided to lease from Jones Ltd a car that had a fair value at 30 June 2019 of $38 960. The lease agreement contained the following provisions. The expected useful life of the vehicle is 5 years. At the end of the 3-year lease term, the car was returned to Jones Ltd, which sold it for $10 000. The annual rental payments include an amount of $1200 to cover the cost of maintenance and insurance arranged and paid for by Jones Ltd. Interest rate is 5% pa 1.prepare the lease payments schedule for Indiana Ltd (show all workings) 2.the journal entries in the records of Indiana Ltd from 30 June 2019 to 30 June 2020.On December 31, 2019, Windsor Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Windsor to make annual payments of $8,092 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4.900 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Windsor uses the straight-line method of depreciation for all of its plant assets. Windsor's incremental borrowing rate is 15%, and the lessor's implicit rate is unknown. Prepare all necessary journal entries for Windsor for this lease through December 31, 2020. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places eg. 5,275.) Date Account Titles and Explanation Debit Credit (To record the lease) (To record first lease payment) (To record amortization of the…On December 31, 2019, Windsor Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Windsor to make annual payments of $9,353 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,800 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Windsor uses the straight-line method of depreciation for all of its plant assets. Windsor’s incremental borrowing rate is 15%, and the lessor’s implicit rate is unknown.Click here to view factor tables. Incorrect answer iconYour answer is incorrect. What type of lease is this? This is a/an select a type of lease Compute the present value of the lease payments. Prepare all necessary journal entries for Windsor for this lease through December 31, 2020