3. On January 1, 20x1, Lessee enters into a 5-year lease of equipment. Annual rental is P300,000 payable at the end of Leases each year. The implicit interest rate in the lease is 9%. The contract provides for a purchase option with an exercise price of P500,000. Lessee is reasonably certain to exercise the purchase option at the end of the lease term. The remaining useful life of the underlying asset is 8 years. Lessee uses the straight line method of depreciation. Requirements: a. Prepare the amortization table for the lease liability. b. Provide the journal entries on the following dates: January 1, 20x1 and December 31, 20x1.

3. On January 1, 20x1, Lessee enters into a 5-year lease of equipment. Annual rental is P300,000 payable at the end of Leases each year. The implicit interest rate in the lease is 9%. The contract provides for a purchase option with an exercise price of P500,000. Lessee is reasonably certain to exercise the purchase option at the end of the lease term. The remaining useful life of the underlying asset is 8 years. Lessee uses the straight line method of depreciation. Requirements: a. Prepare the amortization table for the lease liability. b. Provide the journal entries on the following dates: January 1, 20x1 and December 31, 20x1.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $10,000 over…

A: An agreement of contract that is prepared to transfer the right to use the resources for a…

Q: A finance lease agreement calls for quarterly lease payments of $7,728 over a 10-year lease term,…

A: a.DateLease paymentEffective interestDecrease in balanceOutstanding balanceJuly 1 184,000July…

Q: Prepare the lease payments schedule for the Moose Ltd. Prepare the journal entries in the books of…

A: A lease is a contractual agreement between a lessor (owner) and a lessee (user) granting the lessee…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over…

A: Amortization schedule refers to a statement showing the interest charged, principal payment,…

Q: The useful life of the leased property is 6 years. The asset will revert to the lessor at the end of…

A: There are two types of leases: 1. Finance Lease 2. Operating Lease A lease in which all risks and…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $25,000 over…

A: A lease is a binding agreement between two parties, one party sells the right to use the asset to…

Q: The following information applies to Questions 15-19. On January 1, Lessor Company leases equipment…

A: Solution: % of PV of lease payment with fair value of equipment = $57,510 / $61,000 = 94.28% As PV…

Q: At the beginning of the year, Cazenovia, Inc. entered into a five-year lease for equipment that was…

A: Explanation: REQUIRED: What is the total expense if straight-line amortization is used for the…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over…

A: The lease is an option where one party can take an asset on rent from another party and there is no…

Q: Lessee enters into a five-year lease of office space on January 1, and concludes that the agreement…

A: In the case of an operating lease, the lease rentals are expensed in the books. In case, where lease…

Q: Entity 5 leases a machine from ABC ltd. On 1 January 2022. The terms of the leasing contract are as…

A: It has been given that Entity 5 has leased machine from ABC Ltd.The lease has been acquired by the…

Q: The lease asset had a retail cash selling price of $110,000. Its useful life was six years with no…

A: Leased asset depreciation: $110,000 / 6 = $18,333

Q: er to the following lease amortization schedule. The five payments are made annually starting with…

A: The lease payment are the periodic payments made to use the assets that belongs to another and no…

Q: Company A leases equipment from Company B in a finance lease. Lease payments of $3,226 are due…

A: The right-to-use asset is the amount that is recorded by the lessee in its balance sheet that…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $30,000 over…

A: An organization that signs a lease gets the usage rights over an asset without really owning it. The…

Q: The following separate scenarios relate to a 5-year lease, pertaining to equipment with a fair value…

A: Lease refers to the contract in which owner of the equipment allows another party to use the…

Q: Boyce Company leased a music studio from Justine company on a 6-year lease term at P250,000 annual…

A: Annual lease payment=P250000Price at the end of 6 years=P200000Interest rate=12%Economic life=10…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over…

A: A lease is an agreement between two parties in which one party provides assets on rent to another…

Q: A six-year operating lease requires annual rent payments of $15,000 for years 1, 2, and 3, and…

A: Lets understand the basics. As per IFRS 16 "Leases", when there is operating lease then lessor…

Q: On 1 July 2020 Jane Ltd (lessor) leased equipment to Austin Ltd (Lessee). The equipment had a fair…

A: The expression "Lease Payment" is similar to the term "Rental Payment." It describes the payment…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over…

A: Lease is a agreement between lessor and lessee where lessor allows lessee to use assets in exchange…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: The Harris Company is the lessee on a four-year lease with the following payments at the end of each…

A: Leasing is an agreement which is usually written between the lessor and the lessee which allows for…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $25,000 over…

A: The lease is an option where one party can take an asset for rent from another party and there is no…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over…

A: A lease is a legal arrangement between two people. In this arrangement, one party sells the right to…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $36,000 over…

A: Lease - It is an agreement between a lessor and a lessee and the lessor gives the lessee the right…

Q: Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace…

A: Lease for accounting purposes means entering into an agreement with the purpose of taking an asset…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

100%

3. On January 1, 20x1, Lessee enters into a 5-year lease of
equipment. Annual rental is P300,000 payable at the end of
Leases
COC
On January 1, 20x1, Lessee enters into a 5-year lease of
equipment. Annual rental is P300,000 payable at the end of
each year. The implicit interest rate in the lease is 9%. The
contract provides for a purchase option with an exercise price
of P500,000. Lessee is reasonably certain to exercise the
purchase option at the end of the lease term. The remaining
useful life of the underlying asset is 8 years. Lessee uses the
straight line method of depreciation.
Requirements:
a. Prepare the amortization table for the lease liability.
b. Provide the journal entries on the following dates: January 1,
20x1 and December 31, 20x1.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1Basic Information

VIEW

Step 2 Solution a

VIEW

Step 3 Solution b

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over a six-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 7%. Required: If the lessee's fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)?
The following information relates to an equipment lease with an inception date of January 1: Fair value of equipment at lease inception, $56,000 Lease term, 5 years Economic life of property, 6 years Implicit interest rate, 7% Annual lease payment due on December 31, $13,200 The equipment reverts back to the lessor at the end of the lease term. How much is recorded as the lease liability on the lease inception date? Select one: a. $66,000 b. $56,000 c. $57,911 d. $54,123
Lessee enters into a 10-year lease of property with annual lease payments of P50,000, payable at the beginning of each year. The contract specifies that lease payments will increase every two years on the basis of the increase in the Consumer Price Index for the preceding 24 months. The Consumer Price Index at the commencement date is 125. The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 5 per cent per annum, which reflects the fixed rate at which Lessee could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a 10-year term, and with similar collateral. Discount factor for 5% for 9 periods is 7.10782.Lessee expects to consume the right-of-use asset’s future economic benefits evenly over the lease term and, thus, depreciates the right-of-use asset on a straight-line basis.At the beginning of the third year of the lease the Consumer Price Index is 135.Determine the amount of lease liability…
Terms of a lease agreement and related facts were: a. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $5,408. b. The retail cash selling price of the leased asset was $425,000. Its useful life was three years with no residual value. c. The lease term is three years and the lessor paid $425,000 to acquire the asset. d. Annual lease payments at the beginning of each year were $160,000. e. Lessor's implicit rate when calculating annual rental payments was 13%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for the lessor to record the lease and related payments at its beginning, January 1, 2018. 2. Calculate the effective rate of interest revenue after adjusting the net investment by initial direct costs. 3. Record any entry(s) necessary at December 31, 2018, the fiscal year-end.…
On 1 July 2020, Table Ltd leased equipment from Chair Ltd. The following are details of the equipment and the lease contract: On 1 July 2020 equipment has a fair value of $110,000 (at fair value in Chair Ltd’s accounts) Lease term is 5 years, useful life of the equipment is 6 years, and Table Ltd will return the equipment at the end of the lease term Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2020, with $24,000 as the annual payment Residual value of the equipment at the end of the lease term is $8,000, with Table Ltd guaranteeing 75% of the residual value The interest rate implicit in the lease arrangement is 6%. In setting up the lease arrangement Table Ltd incurred costs of $2,354, while Chair Ltd incurred costs of $3,141. Required: a) Prepare the necessary journal entries for Table Ltd on 1 July 2020. b) Calculate interest and depreciation expense incurred on 30 June…
6. Explosive Leasing acquires equipment and leases it to customers under long-term sales-type leases. Explosive earns interest under these arrangements at a 6% annual rate. Explosive purchased a device and then leased it for $342,400 under an arrangement that specified annual payments to be received for five years, beginning at the commencement of the lease. The lessee had the option to purchase the device at the end of the lease term for $49,650 when it was expected to have a residual value of $99,300. Calculate the amount of the annual lease payments. (Do not round intermediate calculations. Round your answer to nearest whole dollar amount.)The present value of $1: n = 5, i = 6% is 0.74726.The present value of an ordinary annuity of $1: n = 5, i = 6% is 4.21236.The present value of an annuity due of $1: n = 5, i = 6% is 4.46511.
Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $1,500 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years. Lease Cash Effective Decrease in Outstanding Payment Payment Interest Balance Balance 40,860 31,960 24,978 17,577 9,731 ?? 0 1 2 3 4 5 6 8,900 8,900 8,900 8,900 8,900 1,500 Multiple Choice $46,000 ?? 1,918 1,499 1,055 What is the total interest paid over the term of the lease? $2.760 ?? 85 ?? 6,982 7,401 7,845 ?? 1,415