On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease term is six-year requires payment of $87,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. If the fair value of the machine is $520,000, and the machine will be reverting to GMC Corp at the end of lease term. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. The annual depreciation for the leased machine at Arab Corp. as lessee is closed to: a. $43,366. b. $48,661. c. $72,394. d. $54,295.

On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease term is six-year requires payment of $87,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. If the fair value of the machine is $520,000, and the machine will be reverting to GMC Corp at the end of lease term. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. The annual depreciation for the leased machine at Arab Corp. as lessee is closed to: a. $43,366. b. $48,661. c. $72,394. d. $54,295.

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

See similar textbooks

Similar questions

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. 47,910
The lessor company signs a lease agreement on December 31, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $87,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $42,000. The lessor expects to earn a return of 10% on its investment. The equipment has a useful economic life of 10 years. What is the amount of lease receivable the lessor will record on December 31, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 8 periods 2.14 0.47 11.44 5.33 5.87 10%, 10 periods 2.59 0.39 15.94 6.14 6.76
The lessor company signs a sales-type lease agreement on January 1, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $63,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $44,000. The lessor expects to earn a return of 8% on its investment. What is the amount of sales the lessor will record on January 1, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 8%, 8 periods 1.85 0.54 10.64 5.75 6.21
On January 1, 2020, Mountain Inc. leases a machine used in its operations. The annual lease payment is $10,000 due on December 31 of 2020, 2021, and 2022. The fair value of the machine on January 1, 2020 is $26,730. The machine has no residual value. Mountain could borrow on a three-year collateralized loan at 6%. If the lease is accounted for as a finance lease, the total expenses related to this lease contract that Mountain Inc. will report in its income statement for the year ending December 31, 2020 is Select one: a. $10,600 b. $10,514 c. $10,717 d. $10,000
ABC Company is the lessee and will lease an asset owned by XYZ Company. The semi-annual cash payments, required to be made by ABC, are $500,000. The lease goes for 5 years, and starts on January 1, 2021. Assume a capital lease. The periodic payments are due on June 30 and December 31 of each year. ABC uses an interest rate of 10%. What is the present value of the lease payments? $3,860,867 $1,895,393 $3,790,787 $5,000,000
On January 1, 2025, Haystack, Inc. leased equipment to Silver Point Company. The equipment had a cost and fair value of $780,000. The 5-year lease calls for equal annual payments at the beginning of each year. The equipment has an expected useful life of 5 years. The rate implicit in the lease is 8% but the lessee's incremental borrowing rate is 10%. What are the equal annual lease payments the lessor will charge? (Round to whole dollars) L The present value of an ordinary annuity at: 10% for 5 periods is 3.79079 8% for 5 periods is 3.99271 The present value of an annuity due at: 10% for 5 periods is 4.16986 8% for 5 periods is 4.31213 The present value of a single sum of $1 at: 10% for 5 periods is .62092 8% for 5 periods is .68058 O A. $181,972 OB. $180,885 OC. $175,820 OD. $195,356 O E. $162,795
Wildhorse Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $30,384 at the beginning of each year. The first payment is received on January 1, 2020. Wildhorse had purchased the machine during 2019 for $130,000. Collectibility of lease payments by Wildhorse is probable. Wildhorse set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Wildhorse at the termination of the lease. (a.) Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Amount of the lease receivable $ (b.) Prepare all necessary journal entries for Wildhorse for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal…
Pharoah Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Pharoah. The six-year lease requires payment of $162000 at the beginning of each year, including $24200 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Pharoah should record the leased asset at $660171. $808819. $776108. $687995.
Sunland Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $29.928 at the beginning of each year. The first payment is received on January 1, 2020. Sunland had purchased the machine during 2019 for $150,000. Collectibility of lease payments by Sunland is probable. Sunfand set the annual rental to ensure a 6 % rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sunland at the termination of the lease. Click here to view factor tables. (a) Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places eg. 5,275) Amount of the lease receivable
On December 31, 2020, the lessor company leases equipment to the lessee company with 8 equal annual payments of $113,000 each, payable beginning December 31, 2020. The lessee company agrees to guarantee the $61,000 residual value of the asset at the end of the lease term. The expected value of the residual is $13,000. The lessee’s incremental borrowing rate is 10%, and the lessor’s implicit interest rate is not known by the lessee. What is the amount of initial lease liability the lessee should record on December 31, 2020? (You must choose from the following present/future values.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 8 periods 2.14 0.47 11.44 5.33 5.87
Macinski Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.
Macinski Leasing leases a new machine to Sharrer SA. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non- cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.Instructionse. Prepare the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Macinski's implicit rate (Sharrer's incremental borrowing rate is 9%), and (2) Sharrer incurs initial directs costs of $10,000.