000 are due December 31 for 10 years. The equipment’s useful life is 10 years, and the interest rate implicit in the lease is 10%. The lease obligation was recorded on December 31, 2020 at P2,700,000 and the fir

000 are due December 31 for 10 years. The equipment’s useful life is 10 years, and the interest rate implicit in the lease is 10%. The lease obligation was recorded on December 31, 2020 at P2,700,000 and the fir

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...

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Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
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. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
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.
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
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. 200,000
On December 31, 2020, Kid Company leased equipment from another entity. Pertinent lease transaction data are as follows:The estimated seven-year useful equipment life coincides with the lease term.The first of the seven equal annual P800,000 lease payments was paid on December 31, 2020.The implicit interest rate is 12%Kid’s incremental borrowing rate is 14%.Present values of an annuity of 1 in advance for seven periods are 5.11 at 12% and 4.89 at 14%.What amount should be recorded as initial measurement of the equipment? Show your solution.
On 1 July 2020, the company had entered into a five-year lease agreement for an asset with RF S.A.O.G. The company must make lease payments of OMR 100,000 annually at the beginning of each year. The present value of the total lease payments is RO 379,000. The estimated useful life of the asset is 5 years. The cost of capital used is 10%. Calculate the amount that will be charged in the income statement with regards to such asset for the year ended 31st December 2020. O a. OMR 100,000. O b. OMR 51,850. OC. OMR 75,800. O d. OMR 50,000.
On 1 July 2020, the company had entered into a five-year lease agreement for an asset with RF S.A.O.G. The company must make lease payments of OMR 100,000 annually at the beginning of each year. The present value of the total lease payments is RO 379,000. The estimated useful life of the asset is 5 years. The cost of capital used is 10%. Calculate the amount that will be charged in the income statement with regards to such asset for the year ended 31st December 2020. Oa OMR 100,000. Ob.OMR 51,850. O C OMR 75,800. Od. OMR 50,000.
On January 1, 2021, Flackmon Company entered into a lease for a truck with a payment of S16,000 per year for 4 years. The expected life of the truck is 5 years, and the first payment will be made immediately. Flackmon could obtain a loan for a similar amount at a rate of 8% per year. Required: A. Record the lease liability and the first payment on January 1, 2021. B. Record the amortization on the leased asset for 2021. C. Record interest for 2021 on the lease. D. Record the lease payment on January 1, 2022. Your answers to this open-ended assignment should be placed in the space below this line. A Date Account Name Debit Credit Jan. 1, 2021 1-Jan-21 B Date Account Name Debit Credit Dec. 31, 2021 C Date Account Name Debit Credit Dec. 31, 2021 D Date Account Name Debit Credit Jan. 1, 2022
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?
On January 1, 2020, Narra Company leased an asset for a term of six years. Annual rentals of P500,000 is payable every yearend. The cost of the leased asset is P2,100,000. Initial direct costs paid by Bacarra totaled P6,360. The asset will revert to Bacarra at the end of the lease term, when its residual value would amount to P100,000. Assume it is a direct finance lease with an implicit rate of 12% and the residual value is guaranteed, how much is the interest income for 2020? Assume it is a direct finance lease with an implicit rate of 12% and the residual value is unguaranteed, how much is the net lease receivable as of yearend 2022? Assume it is a sales-type lease with an implicit rate of 10% and the residual value is guaranteed, how much should be credited to sales resulting from the lease? Assume it is a sales-type lease with an implicit rate of 10% and the residual value is guaranteed, how much is cost of sales resulting from the lease? Assume it is a sales-type lease with an…
Neal Company entered into a nine-year capital lease on a warehouse on December 31, 2021. Lease payments of P520,000, which includes executory cost of P20,000 is due annually, beginning on December 31, 2022, and every December 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract was estimated at the present value of P200,000. The interest rate implicit in the lease if 9%. The present value of an ordinary annuity of 1 for nine years at 9% is 5.6. Question: - What amount should be reported as lease liability on December 31, 2021? A. 2,800,000B. 2,912,000C. 4,500,000D. 4,680,000 - What amount should be recognized initially as cost of the right of use asset? A. 2,800,000B. 3,000,000C. 3,112,000D. 4,700,000