19 On January 1, 2020, Pluto Inc. leased a building to Mars Corp. for a ten-year term at an annual rental of $200,000. At inception of the lease, Pluto received $800,000, which covered the first two years rent of $400,000 and a security deposit of $400,000. This deposit will not be returned to Mars upon expiration of the lease, but will be applied to payment of rent for the last two years of the lease. What portion of the $800,000 should be shown as a current and long-term liability in Pluto’s December 31, 2020 statement of financial position? Select one: a. Current Liability $400,000 Long-term Liability $400,000 b.Current Liability $0 Long-term Liability $800,000 c. Current Liability $200,000 Long-term Liability $200,000 d.Current Liability $200,000 Long-term Liability $400,000

19 On January 1, 2020, Pluto Inc. leased a building to Mars Corp. for a ten-year term at an annual rental of $200,000. At inception of the lease, Pluto received $800,000, which covered the first two years rent of $400,000 and a security deposit of $400,000. This deposit will not be returned to Mars upon expiration of the lease, but will be applied to payment of rent for the last two years of the lease. What portion of the $800,000 should be shown as a current and long-term liability in Pluto’s December 31, 2020 statement of financial position? Select one: a. Current Liability $400,000 Long-term Liability $400,000 b.Current Liability $0 Long-term Liability $800,000 c. Current Liability $200,000 Long-term Liability $200,000 d.Current Liability $200,000 Long-term Liability $400,000

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 12P: Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease...

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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 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.
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.
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
On January 1, 2021, Coronado Industries leased a building to Sandhill Co. for a ten-year term at an annual rental of $175000. At inception of the lease, Coronado received $701000 covering the first two years' rent of $350000 and a security deposit of $351000. This deposit will not be returned to Sandhill upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $701000 should be shown as a current and long-term liability, respectively, in Coronado's December 31, 2021 balance sheet? Current Liability Long-term Liability $350000 $175000 $175000 $350000 $0 $701000 $350000 $351000
On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year term at an annual rental of P60,000. At inception of the lease, Ehr received P240,000 covering the first two years' rent of P120,000 and a security deposit of P120,000. This deposit will not be returned to Dent upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 1. What portion of the P240,000 should be shown as a non-current liability in Ehr's December 31, 2021 balance sheet?
On January 1, 2020, Juris Company leased a building to Jay Company for a ten-year term at an annual rental of P1,000,000. At inception of the lease, Juris received P4,000,000 covering the first two years’ rent and a security deposit of P2,000,000. This deposit will not be returned to Jay upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 1. What portion of the P4,000,000 should be reported as current liability on December 31, 2020? A. 0 B. 1,000,000 C. 2,000,000 D. 3,000,000 2. What portion of the P4,000,000 should be reported as non-current liability on December 31, 2020? A. 0 B. 2,000,000 C. 3,000,000 D. 4,000,000 On July 1, 2019, Herr Company leased a delivery truck from Bie Company under a 3-year operating lease. Total rent for the term of the lease will be P360,000 payable as follows: First 12 months @ P5,000 per month 60,000 Next 12 months @ P7,500 per month 90,000 Last 12 months @ P17,500 per month 210,000 All payments were…
On January 1, 2020, Nge Company leased a building to Lol Corp. for a ten-year term at an annual rental of P140,000.At inception of the lease, Nge received P560,000 covering the first two years' rent of P280,000 and a security deposit ofP280,000. This deposit will not be returned to Lol upon expiration of the lease but will be applied to payment of rent for thelast two years of the lease. What portion of the P560,000 should be shown as a current and long-term liability, respectively,in Nge's December 31, 2020 balance sheet? Current Liability Long-term Liabilitya. P0 P560,000b. P140,000 P280,000c. P280,000 P280,000d. P280,000 P140,000
On January 1, 2023, Cheyenne Inc. leased a building to Concord Corp. for a ten-year term at an annual rental of $207000. Atinception of the lease, Cheyenne received $828000, which covered the frst two years rent of $414000 and a security deposit of$414000. This deposit will not be returned to Concord upon expiration of the lease but will be applied to payment of rent for the lasttwo years of the lease. What portion of the $828000 should be shown as a current and long-term liability in Cheyenne's December31, 2023 statement of financial position?
On January 1, 2020 ABC Company leased a building to XYZ Company for a 10-year term at an annual rental of P500,000. At the inception of the lease, ABC received P2,000,000 covering the first two years' rent of P1,000,000 and a security deposit of P1,000,000. This deposit will not be returned to XYZ upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the P2,000,000 should be shown as current and noncurrent liability in ABC's December 31, 2020 statement of financial position? a. Current liability P0, Noncurrent liability P2,000,000 b. Current liability P500,000, Noncurrent liability P1,000,000 c. Current liability P1,000,000, Noncurrent liability P1,000,000 d. Current liability P1,000,000, Noncurrent liability P500,000
On January 1, 2023, Riverbed Ltd., a private company following ASPE, leased a building to Candle Corp. for a ten-year term at an annual rental of $86500. At the inception of the lease, Riverbed received $346000 covering the first two years rent of $173000 and a security deposit of $173000. This deposit will NOT be returned to Candle upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $346000 should be shown as a current and long-term liability, respectively, in Riverbed's December 31, 2023 statement of financial position? Current Liability. Long-term Liability $0 $346000 $86500 $173000 $173000 $173000 $173000 $86500
On January 1,2019, Glen Company leased a building to Mix Company for 10-year term at an annual rental of P500,000. At inception of the lease, Glen received P2,000,000 covering the first two years rent of P1,000,000 and a security deposit of P1,000,000. This deposit will not be returned to Mix Company upon expiration of the lease but will be applied to payment of rent for the last two years of the lease.What amount should be reported as current and noncurrent liability in December 31, 2020 statement of financial position? a. 0 2,000,000b. 500,000 1,000,000c. 1,000,000 1,000,000d. 1,000,000 500,000