24. PWEDE BANG I-LEASE ANGUTAK CORP. leases a piece ofland from another company.The lease does not transferownership of the land to thelessee but the present value ofthe future lease payments isequal to a significant portion ofthe fair market value of theland. It also leases a piece ofequipment from the samecompany. The lease for thisequipment does not contain apurchase option but the termof the lease is equal to 15 of the20-year economic life of suchan underlying asset which,under the new standard,comprises the majority of theequipment's useful life. Howshould the lessor of theseassets classify these leases? *a. Lease of Land - Finance Lease;Lease of Equipment - OperatingLeaseb. Lease of Land Finance Lease;Lease of Equipment - Finance Leasec. Lease of Land - Operating Lease;Lease of Equipment - Finance Leased. Lease of Land - Operating Lease;Lease of Equipment - OperatingLease

Financial Lease and Operating Lease: A lease is an agreement between two parties where the owner of…

Answered: 24. PWEDE BANG I-LEASE ANG UTAK CORP.…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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4...new... b... Bonita Leasing Company agrees to lease equipment to Windsor Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $559,000, and the fair value of the asset on January 1, 2020, is $724,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Windsor estimates that the expected residual value at the end of the lease term will be 60,000. Windsor amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Bonita desires a 10% rate of return on its investments. Windsor’s incremental borrowing ra Calculate the amount of the annual rental payment…
(Lease Capitalization, Bargain-Purchase Option) Baden Corporation entered into a lease agreement for 10 photocopy machines for its corporate headquarters. The lease agreement qualifies as an operating lease in all terms except there is a bargain-purchase option. After the 5-year lease term, the corporation can purchase each copier for $1,000, when the anticipated fair value is $2,500.Jerry Suffolk, the financial vice president, thinks the financial statements must recognize the lease agreement as a capital lease because of the bargain-purchase option. The controller, Diane Buchanan, disagrees: “Although I don’t know much about the copiers themselves, there is a way to avoid recording the lease liability.” She argues that the corporation might claim that copier technology advances rapidly and that by the end of the lease term the machines will most likely not be worth the $1,000bargain price.InstructionsAnswer the following questions.(a) What ethical issue is at stake?(b) Should the…
A lessor signs a lease agreement with a lessee. The lease term is only 50% of the economic life of the asset, there is no bargain purchase, ownership does not transfer, and the asset is not specialized. The present value of lease payments is 92% of the asset’s fair value. This is a(an) _________ lease to the lessee and lessor, respectively (enter the number that represents the correct answer). To the lessee To the lessor operating lease operating lease operating lease sales-type lease finance lease operating lease finance lease sales-type lease
6 Company A (lessee) has reached a lease agreement with Company B (assor) to kase a new carpet weaving machine beginning January 1, Year 1. The lease agreement contains the following information • The lease is for five years, requiring annual payments of $10,355.67 at the beginning of the year. • The weaving machine has a fair value at the beginning of the lease of $50,000; an estimated economic life of five years; and a guaranteed residual value of $2,500 (Company A expects that the value will be greater). • Present value of the weaving machine is $47,945.18. • There are no renewal options. At the end of the lease, the weaving machine will be returned to Company B. • Company A depreciates similar equipment that it purchases on a straight-line basis. • Company B sels the annual lease rate al 5% and Company A is aware of the rate. • The lease is a finance lease. COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease Payment Date January 1, Year 1 January 1, Year 1 January…
Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases under U.S. GAAP? Lease A Lease B A.) Operating lease Capital lease B.) Operating lease Operating lease C.) Capital lease Capital lease D.) Capital lease Operating lease
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PWEDE BANG I-LEASE ANG UTAK CORP. leases a piece of land from another company. The lease does not transfer ownership of the land to the lessee but the present value of the future lease payments is equal to a significant portion of the fair market value of the land. It also leases a piece of equipment from the same company. The lease for this equipment does not contain a purchase option but the term of the lease is equal to 15 of the 20-year economic life of such an underlying asset which, under the new standard, comprises the majority of the equipment's useful life. How should the lessor of these assets classify these leases? a. Lease of Land - Finance Lease; Lease of Equipment - Operating Lease b. Lease of Land - Finance Lease; Lease of Equipment - Finance Lease c. Lease of Land - Operating Lease; Lease of Equipment - Finance Lease d. Lease of Land - Operating Lease; Lease of Equipment - Operating Lease
Small Ltd signed a 3-year contract with Big Ltd for the use of a factory on 1 July 2020 with the option to purchase the machinery at the end of the lease term. It is reasonably expected that Small Ltd will not exercise the bargain purchase option but returns the asset to the lessor. The leased machinery meets the criteria of a leased asset in accordance with AASB16 Leases. The following information shows the lease terms: Lease term (non-cancellable) Expected useful life of the machinery Expected residual value of the machinery Residual value guaranteed Expected fair value of the machinery at the end of lease term Bargain purchase price at the end of lease term Net initial directly attributable costs (paid at 1 July 2020) Initial lease payment (paid at 1 July 2020) Annual lease payment (paid in arrears at 30 June) Interest rate implicit in the lease O $36,857 O $98,284 O $36,857 3 years O $84,049 8 years nil $40 000 $50 000 $60 000 $10 000 What is the amount the depreciation expense…
For accounting purposes, which one of the following conditions would automatically cause a lease to be classified as a capital lease? Multiple Choice O O O The lessee can purchase the asset at fair market value at the end of the lease. The lease transfers ownership of the asset to the lessee by the end of the lease term. The lease term equals 60 percent or more of the asset's estimated economic life. The present value of the lease payments equals 75 percent of the asset's fair market value at lease inception. The lessor can renew the lease at the end of the lease term.

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