On January 1, 2020, ABC Company as lessee signed a 5-year noncancelable equipment lease with annual payments of P1,000,000 beginning December 31, 2020. ABC treated this transaction as a finance lease. The five lease payments have a present value of P3,790,000 at January 1, 2020 based on interest of 10%. What amount should ABC report as interest expense for the year ended December 31, 2020?
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On January 1, 2020, ABC Company as lessee signed a 5-year noncancelable equipment lease with annual payments of P1,000,000 beginning December 31, 2020. ABC treated this transaction as a finance lease. The five lease payments have a present value of P3,790,000 at January 1, 2020 based on interest of 10%.
What amount should ABC report as interest expense for the year ended December 31, 2020?
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- Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.Lessor Accounting Issues Ramsey Company leases heavy equipment to Terrell Inc. on March 1, 2019, on the following terms: 1. Twenty-four lease rentals of 2,950 at the beginning of each month are to be paid by Terrell, and the lease is noncancelable. 2. The cost of the heavy equipment to Ramsey was 55,000. 3. Ramsey uses an implicit interest rate of 18% per year and will account for this lease as a sales-type lease. Required: Prepare journal entries for Ramsey (the lessor) to record the lease contract on March 1, 2019, the receipt of the first two lease rentals, and any interest income for March and April 2019. (Round your answers to the nearest dollar.)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.
- Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company 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 equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.On January 1, 2021, Company A (lessor) enters into a lease of equipment with Company B. Information on the lease is as follows: Cost of equipment - P320,183 Useful life of equipment - 5 years Lease term - 4 years Annual rental payable at the beginning of each year? Company A incurred initial direct costs of P20,000 in negotiating the lease. The implicit interest rate is 12%. How much is the annual rent?On January 1, 2020, an entity leased a machinery with the following data: Annual rental payable at the end of each year for P80,000 with a lease term for 6 years and with an implicit rate of 7%. On January 1, 2023, the entity and the lessor agreed to amend the original terms of the lease by reducing the lease payment to P70,000 and increasing the implicit rate to 9%. Compute for the interest expense to be recognize on January 1, 2023. 15,947 18,968 14,696
- On January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. Lessee paid P60,000 lease bonus to obtain the lease and security deposit of P40,000 to be refunded upon expiration of the lease. How much is the total rent income in 2021?On December 31, 2021, Rafferty Company leased equipment under a finance lease. Annual lease payments of P200,000 are due December 31 for 10 years. The useful life of the equipment is 10 years, and the interest rate implicit in the lease is 10%. The finance lease obligation was recorded onDecember 31, 2021, at P1,350,000, and the first lease payment was made on that date. Question: What amount should be includedc in current liabilities on December 31, 2021 in relation to the lease? A. 65,000 B. 85,000 C. 115,000 D. 200,000On January 1, 2016, an entity entered into a four-year operating lease. The payments were as follows: P20,000 for 2016; P18,000 for 2017; P16,000 for 2018 and P14,000 for 2019. What is the correct amount of lease expense for 2019? 20,500 19,000 14,000 18,000 17,000
- On January 1, 2020, Chan Company entered in a five-year lease agreement with rentals of P100,000 payable at yearend for the first three years and P150,000 payable at the succeeding yearends. At an implicit interest rate of 10%, the lease liability and right of use asset was initially recorded at P475,322. The asset will revert to the lessor at a guaranteed residual value at the end of the lease term. The fair value of the asset on December 31, 2024 is P35,000. 1. How much is the carrying amount of the lease liability on December 31, 2022? 2. How much is the carrying amount of the right of use asset as of yearend 2021? 3. How much is the total amount to be reflected on the 2024 profit orOn January 1, 2020, Chan Company entered in a five-year lease agreement with rentals of P100,000 payable at yearend for the first three years and P150,000 payable at the succeeding yearends. At an implicit interest rate of 10%, the lease liability and right of use asset was initially recorded at P475,322. The asset will revert to the lessor at a guaranteed residual value at the end of the lease term. The fair value of the asset on December 31, 2024 is P35,000. How much is the carrying amount of the lease liability on December 31, 2022? How much is the carrying amount of the right of use asset as of yearend 2021? How much is the total amount to be reflected on the 2024 profit or loss arising from the lease?On March 31, 2021, Southwest Gas leased equipment from a supplier and agreed to pay $200,000 annually for 20 years beginning March 31, 2022. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $2,293,984 lease liability.Required:Determine the interest rate implicit in the lease agreement.