6. Rankin Ltd has entered into an agreement to lease an item of equipment that produces teddy bears. The terms of the lease are as follows: . • Date of entering lease: 1 July 2023. • Duration of lease: 10 years. • Life of leased asset: 10 years. . There is no residual value. • Lease payments: $5000 at lease inception, $5500 on 30 June each year (that is, 10 payments). • Included within the lease payments are executory costs of $500. • Fair value of the machine at lease inception: $27 470. REQUIRED Determine the interest rate implicit in the lease...

6. Rankin Ltd has entered into an agreement to lease an item of equipment that produces teddy bears. The terms of the lease are as follows: . • Date of entering lease: 1 July 2023. • Duration of lease: 10 years. • Life of leased asset: 10 years. . There is no residual value. • Lease payments: $5000 at lease inception, $5500 on 30 June each year (that is, 10 payments). • Included within the lease payments are executory costs of $500. • Fair value of the machine at lease inception: $27 470. REQUIRED Determine the interest rate implicit in the lease...

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. Doris Smith recorded a capital lease at PV $350,640 on January 1, 2017. The interest rate is 11%. The leased asset has a life of 5 years. Smith made the first lease payment of $57,051 on 1/1/17. The lease requires 6 annual payments. A. Why is this a capital lease? B. Prepare the amortization schedule for the first 3 years for the lessee lessor
Smart Ltd negotiated a lease on the following terms: the lease had a 3 year term; the purchase price of the new equipment was R41 250; there were 3 annual payments of R15 000 payable in advance; and Smart Ltd was able to borrow at 10% per annum. The balance sheet liability figure at the end of the second year would be Select one: O a. R13 750 O b. R15 000 O c. R12 250 O d. R15 000
The Arcade Company entered into a 10 year lease under which it made payments of R26 720 annually in advance.Arcade's borrowing rate was 10% per annum. The present value of the land was R125 000 and that of the buildings wasR125 000. The value of the land at the end of 10 years was R167 500 and the value of the buildings was R32 500. What isthe present value of the operating lease?Select one:a.None of the given options is correctb.R125 000c.R64 571d.R48 188
Fitbit Ltd has leased a machine on the following terms: Date of entering lease Duration of lease 1 July 2019 5 years Life of asset years Unguaranteed residual value Lease payments inception (at the start) Annual payments (5) Implied rate 11.0 % $40,000 $60,000 $65,000 Required: Determine the Fair Value (rounded off) of the leased asset. 27:S
Company A leases a motor vehicle from Company B.• The lease became effective 1 January 2014 and the lease term is for 4 years.• The annual lease payments are 10 000 per annum, in arrears.• There is no option of renewal (of the lease agreement).• The implicit interest rate is 10%.• The fair value of the motor vehicle at 1 January 2014 is 31,700. Required:For each of the scenarios below, discuss whether or not the above lease agreementconstitutes a finance lease: Scenario 1: The useful life of the motor vehicle is 8 years. At the end of the lease period,ownership of the motor vehicle transfers from Company B to Company A.  Scenario 2: The useful life of the motor vehicle is 4 years. At the end of the lease period,ownership of the motor vehicle remains with Company B.  Scenario 3: If the lease payments per annum is $5,000 and the useful life of the vehicle is8 years.
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.
On 1 March 2020,the company entered into a lease agreement in order to lease a manufacturing machine with a costprice of R250 000 (VAT inclusive). The period of the lease is five years, and the useful life of the machinery is estimatedat six years. The following is an extract from the lease agreement:4.1.1 Ownership of the machinery will be transferred to the Lessee at the end of the lease.4.1.2 Should the Lessee cancel the lease, the Lessor’s losses will be borne by the Lessee.Monthly instalments are payable in arrears and amount to R5 947 (VAT inclusive). The company used themanufacturing machine for a qualifying purpose. The company is a registered VAT vendor.Required:Provide the deferred tax movement per the balance sheet method for the lease agreement for the financial year ending31 December 2021. Clearly indicate whether the movement represents an income or an expense. Note:- Show all calculations, marks are awarded for calculations.- You may round off to the nearest Rand.
On 1 July 2022, ABC Ltd enters into a four-year lease of a machine. ABC Ltd will pay fixed annual payments of $90 000 for four years with the first payment on 30 June 2023 To enter the lease ABC Ltd incurs direct costs of $12 000 at the commencement of the lease term There is a bargain purchase price option (that ABC Ltd is willing to exercise) for $30 000 at the end of the lease term The machine is expected to have a useful life of 10 years and no residual value. Lessee’s incremental borrowing rate: 10% Required: 1. Determine the initial measure of the lease liability and right-of-use asset and prepare the related accounting journal entry. 2. Prepare the lease payment schedule.
On 1 July 2015, Tiger Ltd leased a PET Injection machine from Ibri City Ltd. The machine cost Ibri City Ltd $140,000 to manufacture and had a fair value of $159,109 on 1 July 2015. The lease agreement contained the following provisions: Lease term 4 years Annual rental payment, in advance on 1 July each year $51,500 Residual value at end of the lease term $15,000 Residual guaranteed by lessee nil Interest rate implicit in lease 8% The lease is cancellable only with the permission of the lessor The expected useful life of the machine is 5 years. Tiger Ltd intends to return the machine to the lessor at the end of the lease term. Included in the annual rental payment is an amount of $11500 to cover the costs of maintenance and insurance paid for by the lessor. Required Explain why the lease should be classified as a finance lease by both lessee and lessor based on the guidance provided in Accounting Standard (show all workings including lease…
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Recording Lease ObligationsE17B. Business Application ▶ Soong Corporation has leased a piece of equipmentthat has a useful life of 12 years. This capital lease requires payments of $43,000 per yearfor 12 years. Soong currently is able to borrow money at a long-term interest rate of8 percent. (Round to the nearest dollar.)1. Calculate the present value of the lease.2. Prepare the journal entry to record the lease agreement.3. Prepare the journal entry to record depreciation of the equipment for the first yearusing the straight-line method.4. Prepare the journal entries to record the lease payments for the first two years.
Chad Ltd negotiated a lease on the following terms: the term of the lease was 5 years; the estimated useful life of theleased equipment was 10 years; the purchase price was R60 000; and the annual lease payment was R5 000. This leaseshould be classified as_____.Select one:a.a financial leaseb.An operating leasec.neither operating nor finance leased.A finance lease