9. Core Oil Company obtained a three-year lease on 1,000 acres on May 1, 2004 that contained a $3 per acre delay rental clause. Drilling operations were started on June 15, 2005 and completed on October 16, 2005. The well, determined to be dry, was plugged and abandoned. No further drilling operations were started during the primary term. All required delay rentals were paid. Give all entries relating to the delay rental requirement.
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- 20. Duncan Corporation leased 3,000 unexplored acres, paying a lease bonus of $160/acre. Delay rentals are specified at a rate of $4/acre. The lease also specified that Duncan Corporation could abandon the lease in 1,000-acre portions. At the end of year 1, Duncan Corporation abandoned 2,000 acres and paid a delay rental on the remainder. REQUIRED: Prepare journal entrics for the above activities.On January 1, 2018, Sauder Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Sauder to make annual payments of $200,000 at the beginning of each year for five years beginning on January 1, 2018 with the title passing to Sauder at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sauder uses the straight-line method of depreciation for all of its fixed assets. The minimum lease payments were determined to have a present value of $833,972 at an effective interest rate of 10%. What type of lease would this be for Sauder?At January 1 of the current year, Widget World Corporation leased manufacturing equipment from Clinton Corporation under a 6-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1 of the current year, the beginning of the lease, and on each December 31 thereafter. The equipment was acquired recently by Clinton at a cost of $146,163 (its fair value) and was expected to have a useful life of 8 years with no salvage value at the end of its life. Because the lease term is only 6 years, the asset does have an expected residual value at the end of the lease term of $28,000. Clinton seeks a 7% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. Required: 1. Determine the present value of the lease using Excel's PV function. 2. Prepare the journal entry for Widget World Corporation at the beginning of the lease on January 1 of the current year. 3. Prepare a partial amortization schedule for the first year…
- Fundo entered into a 20-year operating lease for a property on 1 October 2000 which has a remaining life of eight years at 1 October 2012. The rental payments are $2.3 million per annum. Prior to 1 October 2012, Fundo obtained permission from the owner of the property to make some internal alterations to the property so that it can be used for a new manufacturing process which Fundo is undertaking. The cost of these alterations was $7 million and they were completed on 1 October 2012 (the time taken to complete the alterations can be taken as being negligible). A condition of being granted permission was that Fundo would have to restore the property to its original condition before handing back the property at the end of the lease. The estimated restoration cost on 1 October 2012, discounted at 8% per annum to its present value, is $5 million. Required: (a) Explain how the lease, the alterations to the leased property and the restoration costs should be treated in the financial…On January 1, 2021, Sandhill Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Sandhill to make annual payments of $196000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Sandhill at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sandhill uses the straight-line method of depreciation for all of its fixed assets. Sandhill accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $830985 at an effective interest rate of 9%.In 2021, Sandhill should record interest expense of $138851. $74789. $57149. $121211.On January 1, Year 1, Montana Mining Equipment LLC purchased a new excavator for $1.5 million with an expected 20-year useful life and no residual value. Shortly thereafter, this equipment was leased by Shasta Mining Corp. who will make annual lease payments on January 1 of each year for $300,000, starting on January 1, Year 1. The lease term is 16 years with no purchase option. This equipment reverts back to Montana Mining at the end of the lease. The estimated residual value at the end of the lease term is $500,000 and is guaranteed by Shasta Mining who expects the estimated residual value at the end of the lease term to be $500,000. The implicit interest rate of the lease is 5% and is known by Shasta. a) This problem pertains to the LESSEE. What type of lease is this?Answer b) Who is the Lessor?Answer c) Who is the Lessee?Answer d) What is the present value of the lease payments?Note: Round answer to the nearest whole number.$Answer e) Prepare the appropriate journal entries for the…
- A saltwater disposal system is added to Lease A's gathering system at a cost of $225,000. Assume the following acquisition costs and monthly operating expense fro the motn of May 2018 is $30,000. Case A: The disposal system serves several wells on two different leases. There are 7 wells on lease A and 10 wells on Lease B. Case B: the disposal system serves only the wells on Lease A. Required: Record the acquisition cost and the monthly expenses.1. On January 1, 2014, MU Corporation leased an asset, under an operating lease, to obtain the use of a special machine for three years. The lease payments were $9,000 per year payable at each year-end; the lessee must pay all operating expenses. At the inception date, MU Corporation should: a. record the asset at $27,000. b. record the rent expense of $27,000. c. record the asset at its fair market value. d. make no entry. record the asset at $27,000. O record the rent expense of $27,000. record the asset at its fair market value. make no entryEubank Company, as lessee, enters into a lease agreement on July 1, 2018, for equipment. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years, with no renewal option. Payments of $978,446 are due on July 1 of each year. The fair value of the equipment on July 1, 2018 is $3,500,000. The equipment has an economic life of 6 years with no salvage value. Eubank depreciates similar machinery it owns on the double-declining balance basis. The lessee pays all executory costs. Eubank’s incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for 4 periods at 8%, 3.57710; at 10%, 3.48685). Instructions (a) Indicate the type of lease Eubank Company has entered into and what accounting treatment is applicable. This is a capital lease; therefore, it should be accounted for by the capital lease method. (b) Prepare the journal…
- On January 1, 2021, Sheridan Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Sheridan to make annual payments of $193000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Sheridan at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sheridan uses the straight-line method of depreciation for all of its fixed assets. Sheridan accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $818266 at an effective interest rate of 9%.In 2021, Sheridan should record interest expense of $136726. $119356. $56274. $73644.Thornhill Equipment (lessor) leased a construction crane to Vanier Construction (lessee) on January 1, 2023. The following information relates to the leased asset and the lease agreement. (Click the icon to view the data.) Both companies use the straight-line depreciation method for cranes, and they both have December 31 year-end dates. Required Requirement a. Evaluate how the lessor (Thornhill Equipment) should account for the lease transaction. Start by determining the present value of the lease payments (PVLP). Then calculate the percentage of the PVLP compared to the fair value of the leased asset. (Use a financial calculator for all present value computations. Enter all currency values as positive amounts rounded to the nearest whole dollar. Round the percentage to the nearest whole percent.) PVLP Fair value of asset PVLP as % of fair value % Leased asset and lease agreement - Cost of crane to lessor 100,000 Thornhill's normal selling price for crane $ 146,913 Useful life…On January 2, year 1, Ral Co. leased land and building from an unrelated lessor for a ten-year term. The lease has a renewal option for an additional ten years, but Ral has not reached a decision with regard to the renewal option. In early January of year 1, Ral completed the following improvements to the property: Sales Office Estimated Life: 10 Years Cost: $47,000 Warehouse Estimated Life: 25 Years Cost: $75,000 Parking Lot Estimated Life: 15 Years Cost: $18,000 Amortization of leasehold improvements for year 2 should be?