Wildhorse Company leased equipment to Pina Company on January 1, 2025. Five equal lease payments of $129200 will be made on January 1 of each year. The first lease payment will be made on January 1, 2025. One of the terms of the lease is a guaranteed residual amount of $41500. The residual expected by Pina is $15300. The lease meets the criteria of a finance lease. Pina is not aware of Wildhorse's implicit interest rate and their incremental borrowing rate is 8%. What is the amount Pina will record as the lease liability/right-of-use asset on January 1, 2025 before the first payment is made? 8%, 5 periods O $574958 O $585371 O $567540 O $557127 PV Annuity Due PV Ordinary Annuity PV Single Sum 4.31213 3.99271 0.68058

Wildhorse Company leased equipment to Pina Company on January 1, 2025. Five equal lease payments of $129200 will be made on January 1 of each year. The first lease payment will be made on January 1, 2025. One of the terms of the lease is a guaranteed residual amount of $41500. The residual expected by Pina is $15300. The lease meets the criteria of a finance lease. Pina is not aware of Wildhorse's implicit interest rate and their incremental borrowing rate is 8%. What is the amount Pina will record as the lease liability/right-of-use asset on January 1, 2025 before the first payment is made? 8%, 5 periods O $574958 O $585371 O $567540 O $557127 PV Annuity Due PV Ordinary Annuity PV Single Sum 4.31213 3.99271 0.68058

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...

See similar textbooks

Similar questions

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.
Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. Assume that Garvey is required to make payments on December 31 each year.
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.
Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false? If the lease term is one year or longer, a liability must be recognized. If the lease term is less than one year, an asset must be recognized. The new lease accounting rules will result in more assets and liabilities being recognized on the balance sheet. Leasing will likely remain popular under the new lease accounting rules because leases do not require a large initial outlay of cash.
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
LMN (the lessee) leased a machine from XYZ (the lessor) on January 1, 2023. Relevant information about the finance lease follows: ▪ The lease has a 5 year term, beginning January 1, 2023 and ending December 31 of the final year of the lease. ▪ The lease requires annual payments of $10,000. The first payment is made on the date the lease is signed (January 1, 2023), and subsequent payments are made on December 31 of 2023 and each December 31 after that. ■ The asset has a fair value of $43,121 and an economic useful life of 6 years. ▪ The asset will be returned to XYZ (the lessor) at the end of the lease term. ▪ The lease includes an implicit interest rate of 8% per year. At that rate, the present value of the lease payments is equal to the asset's fair value. Required: What dollar amount will ABC report as the Lease Payable balance as of December 31, 2023 (the end of the first year, after the second payment)?
Gopher Company leased an asset from Harry Company on December 31, 2018, with payments of $62,000 due each December 31 for six years, starting on December 31, 2018. The asset will be returned to Harry Company at the end of the lease term. Gopher has determined that none of the five lease classification criteria are met, so Gopher will classify the lease as an operating lease. Gopher's fiscal year ends on December 31. With these lease payments and Harry's implicit rate of 9%, the right-of-use asset is originally calculated to be $303,158. Make all of Gopher's journal entries for this lease for the following dates (clearly labeling each entry by date): December 31, 2019 and December 31, 2020 (while you are not asked to make the journal entries for December 31, 2018, you should consider them). Show your work.
Brown Enterprises enter into a 4 year lease with ABC Leasing Company. The lease qualifies as an operating lease. The first lease payment of $100,000 was due on January 1, 2024, on the date the lease was executed and all subsequent lease payments due on December 31. The present value of the lease payments was $348,685 and Brown Enterprises correctly recorded the right of use asset and lease liability on January 1, 2024 for this amount. The implicit rate in the lease is 10%. On its 2024 income statement, when Brown Enterprises reports its lease expense for 2024, it will be made up of which of the following components? (Choose all that apply) DAROU amortization $75,132 8. Interest expense $12,829 OCROU amortization $87,171 OD. Interest expense $24,869 Quesdan 12 of 25
Cullumber Company leased equipment from Ayayai Company on July 1, 2025, for an eight-year period expiring June 30, 2033. One of the lease terms is a guaranteed residual amount of $13200. The residual expected by Cullumber will be $8100. The lease meets the criteria of a finance lease. What is the residual value amount that would be included in the calculation of Cullumber's lease liability/right- of use asset? The present value of $8100. The present value of $13200. The present value of $5100. The residual would not be included in the calculation of the lease liability/right-of-use asset.
AC3220 Corp., who reports under ASPE, leases computer equipment on January 1, 2023, and records this as a capital lease. Three annual lease payments of $10,000 are required the beginning of each year, starting January 1, 2023. The interest rate for the lease 10%. Title passes to AC3220 at the end of the lease. AC3220 uses the effective interest method of amortization for the lease. The company uses straight-line depreciation over the equipment's expected useful life of three years, with no residual value. Instructions (Round values to the nearest dollar.) a) Calculate the present value of the lease payments b) Prepare a lease amortization table for 2023, 2024, and 2025. c) Prepare the general journal entries relating to this lease for 2023. Paragraph ✓ Date BI UA + v ... Beginning Balance Payment Interest Expense Lease Amortization Ending Balance 11.
On December 31, 2023, Reagan Incorporated signed a lease with Silver Leasing Company for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2029. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: December 31 2023 2023 2024 2025 2026 2027 Payments $ 90,000 $ 90,000 $ 90,000 $ 90,000 Multiple Choice $36.000 Interest $1,385 $ 17,165 14,251 11,221 8,070 4,793 1,385 78,779 $ 90,000 81,930 2028 $ 90,000 85,207 2029 $36,000 34,615 What is the amount of residual value guaranteed by Reagan to the lessor? $34,615 Decrease in Outstanding Balance Balance $ 90,000 72,835 75,749 Cannot be determined from the given information $ 519,115 429,115 356,280 280,531 201,752 119,822 34,615 Suomit