Lease term Annual rental payable at beginning of each lease year Useful life of machine Implicit interest rate Present value of an annuity of 1 in advance for 10 periods at 10% Present value of annuity of 1 in arrears for 10 periods at 10% Fair value of the machine Depreciation method 10 years $50,000 15 years 10% 6.76 6.15 $400,000 Straight line The lease has no renewal option, the possession of the machine reverts to Sussex when the lease terminates, and the machine does have alternative uses. The first lease payment of $50,000 is paid at the inception of the lease. What amount does Sussex Corp. report for depreciation expense in year 1? ○ $26,667 O $33,800 O $0. Because Bailey, the lessee records a lease liability, Bailey also records depreciation expense. O $40,000

Lease term Annual rental payable at beginning of each lease year Useful life of machine Implicit interest rate Present value of an annuity of 1 in advance for 10 periods at 10% Present value of annuity of 1 in arrears for 10 periods at 10% Fair value of the machine Depreciation method 10 years $50,000 15 years 10% 6.76 6.15 $400,000 Straight line The lease has no renewal option, the possession of the machine reverts to Sussex when the lease terminates, and the machine does have alternative uses. The first lease payment of $50,000 is paid at the inception of the lease. What amount does Sussex Corp. report for depreciation expense in year 1? ○ $26,667 O $33,800 O $0. Because Bailey, the lessee records a lease liability, Bailey also records depreciation expense. O $40,000

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 5P: Sales-Type Lease with Guaranteed Residual Value Calder Company, the lessor, enters into a lease with...

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Sales-Type Lease with Guaranteed Residual Value Calder Company, the lessor, enters into a lease with Darwin Company, the lessee, to provide heavy equipment beginning January 1, 2017. The lease is appropriately classified as a sales-type lease. The lease terms, provisions, and related events are as follows: The lease is noncancelable, has a term of 8 years, and has no renewal or bargain purchase option. The annual rentals are 65,000, payable at the end of each year. The interest rate implicit in the lease is 15%. Darwin agrees to pay all executory costs directly to a third party. The cost of the equipment is 280,000. The fair value of the equipment to Calder is 308,021.03. Calder incurs no material initial direct costs. Calder expects that it will be able to collect all lease payments. Calder estimates that the fair value at the end of the lease term will be 50,000 and that the economic life the equipment is 9 years. This residual value is guaranteed by Darwin. The following present value factors are relevant: PV of an ordinary annuity n = 8, i = 15% = 4.487322 PV n = 8, i = 15% = 0.326902 PV n = 1, i = 15% = 0.869565 Required: 1. Determine the proper classification of the lease. 2. Prepare a table summarizing the lease receipts and interest income earned by Calder for this lease. 3. Prepare journal entries for Calder for the years 2019, 2020, and 2021. 4. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the present value of next years payment approach to classify the lease receivable as current and noncurrent. 5. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the change in present value approach to classify the lease receivable as current and noncurrent.
Lease facts: Date of lease – 6/1/19 Term – 3 years (expires 6/1/22) Semi-annual lease payments of $100,000 every 6/1 and 12/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st Requirements: Assume the lease is treated as a finance lease: Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease Prepare all of the lessor’s required journal entries for 2019 and 2020
Lease facts: Date of lease – 6/1/19 Term – 3 years (expires 6/1/22) Semi-annual lease payments of $100,000 every 6/1 and 12/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st Requirements: Assume the lease is treated as a finance lease: Determine the present value of the lease payments Prepare an amortization table for the lease payments for the lessee Prepare all of the lessee’s required journal entries for 2019 and 2020 Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease Prepare all of the lessor’s required journal entries for 2019 and 2020
given the information below, what type of lease is this for the lessee? Lease term (years) 6 Remaining economic life (years) 10 Present value of lease payment $176,000 Fair value leased asset $200,000 Residual value (unguaranteed) $14,000 Bargain purchase option No Ownership transfer at end of lease. No a. sales-type lease b. short term lease c. operating lease d. finance lease
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Cash Effective Decrease Outstanding Payment Payment Interest in balance Balance 63,282 1 10,000 10,000 53,282 10,000 6,394 3,606 49,676 3. 10,000 5,961 4,039 45,638 10,000 5,477 4,523 41,114 10,000 4,934 5,066 36,048 6. 10,000 4,326 5,674 30,373 7 10,000 3,645 6,355 24,018 10,000 2,882 7,118 16,901
PROBLEM 8: Lease agreement with VARIABLE PAYMENTS Li Zi Company entered into a lease of building on January 1, 2020. The lease contract provided the following information: Lease term 10 years Estimated useful life of leased asset 12 years Annual rental payable at end of each year for the first 5 years 400,000 Annual rental payable at end of each year for the next first 5 years 550,000 Interest rate implicit in the lease 10% No purchase option nor transfer of title REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Payment Cash Payment Effective Interest Decrease in balance Outstanding Balance 63,282 1 10,000 10,000 53,282 2 10,000 6,394 3,606 49,676 3 10,000 5,961 4,039 45,637 4 10,000 5,476 4,524 41,113 5 10,000 4,934 5,066 36,047 6 10,000 4,326 5,674 30,373 7 10,000 3,645 6,355 24,018 8 10,000 2,882 7,118 16,900 9 10,000 ? ? ? 10 10,000 ?…
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Effective Decrease in Outstanding Balance $ 83,943 balance Payment Cash Payment Interest 1 2 3 4 5 6 7 8 9 10 O Multiple Choice O $ 12,000 12,000 12,000 12,000 12,000 12,000 O 12,000 12,000 12,000 $ 12,000 O 9% What is the effective annual Interest rate? Note: Round final answer to the nearest whole percentage. 6% 11% 6,475 5,978 5,436 4,845 4, 201 7% 3,499 $ 2,734 ? 2 $ 12,000 5,525 6,022 6,564 7,155 7,799 8,501 $ 9,266 ? ? 71,943 66,418 60,396 53,832 46,677 38,878 30,377 $ 21,111 ? ?
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Payment 1 2 3 4 5 6 7 8 9 10 O Cash Payment Multiple Choice O $ 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 $ 12,000 O $8,111 $12,000 Effective Decrease in Outstanding Interest balance Balance $81, 108 69,108 64,019 58,421 52,263 45,489 38,038 29,842 $ 20,826 $6,911 $0 6,911 6,402 5,842 5,226 4,549 3,804 $ 2,984 What amount would the lessee record as annual amortization on the right-of- use asset using the straight-line method? Note: Round your answer to the nearest whole dollar. • ? ? $ 12,000 5,089 5,598 6,158 6,774 7,451 8,196 $ 9,016 ? ? ? ?
On January 1, 2020, Yuri Company leased a machine with Problem 11-6 (IFRS) the following information: 100,000 Annual rental payable at the end of each year 5 years Lease term Implicit rate in the lease Present value of an ordinary annuity of 1 at 6% for 5 periods 6% 4.2124 On January 1, 2022, Yuri Company and the lessor agreed to amend the original terms of the lease by reducing the annuol lease payment by P20,000 and increasing the implicit rate to 8%. The present value of an ordinary annuity of 1 at 8% for 3 periods is 2.5771. Required: 1. Prepare the table of amortization for 2020 and 2021. 2. Prepare journal entries for 2020. 3. Remeasure the lease liability on January 1, 2022. 4. Prepare the table of amortization for 2022, 2023 and 2024. 5. Prepare the journal entries for 2022.
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Payment Cash Payment Effective Interest Decrease in balance Outstanding Balance 83,943 1 12,000 12,000 71,943 2 12,000 6,475 5,525 66,418 3 12,000 5,978 6,022 60,396 4 12,000 5,436 6,564 53,832 5 12,000 4,845 7,155 46,677 6 12,000 4,201 7,799 38,878 7 12,000 3,499 8,501 30,377 8 12,000 2,734 9,266 21,111 9 12,000 ? ? ? 10 12,000 ?…
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Payment Cash Payment Effective Interest Decrease in balance Outstanding Balance 101,385 1 15,000 15,000 86,385 2 15,000 8,639 6,361 80,024 3 15,000 8,002 6,998 73,026 4 15,000 7,303 7,697 65,329 5 15,000 6,533 8,467 56,862 6 15,000 5,686 9,314 47,548 7 15,000 4,755 10,245 37,303 8 15,000 3,730 11,270 26,033 9 15,000 ? ? ? 10 15,000…