The Sirap Co. leased equipment from the Xylo co. with a fair market value of $200,000. The lease contract has payments of $30,000 at the end of each year. The terms are 10 years at 10% interest rate. There is no bargain purchase agreement and the lessor will repossess the equipment. The equipment has a useful life of 15 years. Use the 5 criteria and determine if the lease qualifies as a financing lease.

The Sirap Co. leased equipment from the Xylo co. with a fair market value of $200,000. The lease contract has payments of $30,000 at the end of each year. The terms are 10 years at 10% interest rate. There is no bargain purchase agreement and the lessor will repossess the equipment. The equipment has a useful life of 15 years. Use the 5 criteria and determine if the lease qualifies as a financing lease.

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.
The Sirap Co leased equipment from the lessee valued at $400,000. The lease contract has payments of $50,000 per year payable at the end of each year for 12 years. The interest rate is at 8%. The lessor will repossess the equipment at the end of the lease term. The leased equipment does not have a bargain purchase option. The leased equipment has an economic useful life of 16 years. Required: use the 5 criteria, to determine if the lease qualifies as a Capital, financing lease.
Use the 5 lease criteria to determine if the following lease qualifies as a Capital, Financing lease. The Sirap Co leased equipment from the lessee valued at $400,000. The lease contract has payments of $50,000 per year payable at the end of each year for 12 years. The interest rate is at 8%. The lessor will repossess the equipment at the end of the lease term. The leased equipment does not have a bargain purchase option. The leased equipment has an economic useful life of 16 years. Required: use the 5 criteria, like in illustration 15 - 4 to determine if the lease qualifies as a Capital, financing lease.
Consider the following terms of a lease.1. The lease term is 5 years. The lease is noncancelable and requires equal payments of $50,000 at the beginning of each year, beginning January 1, 2019.2. The leased asset is a standard piece of equipment.3. The cost, and fair value, of the equipment to Lessor at the inception of the lease is $350,000. The equipment has an estimated economic life of 10 years and has a zero estimated residual value at the end of this time.4. There is no guarantee of the residual value by Lessee.5. The lease contains no purchase option and no agreement to transfer ownership at the end of the lease.6. Lessee's incremental borrowing rate is 12% per year. Lessee is not able to determine the interest rate implicit in the lease.7. The present value of an annuity due of 5 payments of $50,000 each at 12% is $201,867.45 (4.037349 × $50,000 = $201,867.45).How does the lessee classify the lease? This is not a lease Sales-type lease Operating lease Finance lease
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Company is leasing production equipment where the estimated useful life of the equipment is 11 years, and the lease term is 8 years. As per the current market, the fair value of the equipment is $14 million, while the lease rentals are agreed to be $2.45 million payable at the beginning of each year. If an appropriate discount rate is 12.25%, determine the nature of lease.
Samson Company leases a building and land. The lease term is 6 years and the annual fixed payments are $800,000. The lease arrangement gives Samson the right to purchase the building and land for $11,000,000 at the end of the lease. Based on an economic analysis of the lease at the commencement date, Samson is reasonably certain that the fair value of the leased assets at the end of lease term will be much higher than $11,000,000. What are the total lease payments in this lease arrangement?
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