A agrees to lease a robotic welding unit from Company B on January 1, Year 1. The following conditions apply to the lease: Company • The term of the lease is five years, non-cancellable, and requires payments of $101,350 at the beginning of each year. • The robotic welding unit will have a fair value of $50,000 at the end of the lease; an estimated useful life of five years; and $45,000 guaranteed residual value. There are no renewal options, so the unit will revert to Company B at the termination of the lease. • Company A can borrow at a 5% interest rate. • Company A uses straight-line depreciation on its assets. • Company B set its annual rate of return at 4%, and Company A is aware of this rate. • Present values are as follows: • Present value of lease payments at 4%: $469,240.37 • Present value of lease payments at 5%: $460,737.10 • Present value of residual value at 4%: $38,457.00 • Present value of residual value at 5% : $37,021.50 How much should Company B record as a lease receivable on January 1, Year 1? O $506,261.87 O $507,697.37 O $506,750.00 O $497,758.60

A agrees to lease a robotic welding unit from Company B on January 1, Year 1. The following conditions apply to the lease: Company • The term of the lease is five years, non-cancellable, and requires payments of $101,350 at the beginning of each year. • The robotic welding unit will have a fair value of $50,000 at the end of the lease; an estimated useful life of five years; and $45,000 guaranteed residual value. There are no renewal options, so the unit will revert to Company B at the termination of the lease. • Company A can borrow at a 5% interest rate. • Company A uses straight-line depreciation on its assets. • Company B set its annual rate of return at 4%, and Company A is aware of this rate. • Present values are as follows: • Present value of lease payments at 4%: $469,240.37 • Present value of lease payments at 5%: $460,737.10 • Present value of residual value at 4%: $38,457.00 • Present value of residual value at 5% : $37,021.50 How much should Company B record as a lease receivable on January 1, Year 1? O $506,261.87 O $507,697.37 O $506,750.00 O $497,758.60

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Glaus Leasing Company agrees to lease equipment to Jensen 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 $525,000, and the fair value of the asset on January 1, 2020, is $700,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Jensen estimates that the expected residual value at the end of the lease term will be $50,000. Jensen 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. Glaus desires a 5% rate of return on its investments. Jensen's incremental borrowing rate is 6%, and the lessor's implicit rate is unknown. Instructions (Assume the accounting period ends on…
Brown Enterprises enter into a 4 year lease with ABC Leasing Company. The lease qualifies as an operating lease. The first lease payment of $100,000 was due on January 1, 2024, on the date the lease was executed and all subsequent lease payments due on December 31. The present value of the lease payments was $348,685 and Brown Enterprises correctly recorded the right of use asset and lease liability on January 1, 2024 for this amount. The implicit rate in the lease is 10%. On its 2024 income statement, when Brown Enterprises reports its lease expense for 2024, it will be made up of which of the following components? (Choose all that apply) DAROU amortization $75,132 8. Interest expense $12,829 OCROU amortization $87,171 OD. Interest expense $24,869 Quesdan 12 of 25
A lessee company signed a lease for equipment from a lessor on January 1, Year 1. The lease requires equal rental payments of $18,820 at the beginning of each year of the term. The PV of the lease payments is $108,950. The company pays all executory costs directly to third parties. The appropriate interest rate is 8.65%. Assume IFRS 16 applies. Both the lessor and lessee have December 31 year ends. How much wil be the balance of the Lease Liability in the lessee's books at the end of Year 1 after all adjusting entries assuming (1) the fair value of the equipment equals the PV of the lease payments and (2) any interest is accrued directly to the Lease Liability? 1. $88,134 2. $90,582 3. $93,030 4. $95,478 5. $97,926
Davidson, Incorporated leased a machine from Barwick Corporation. Barwick completed construction of the machine on January 1, 2024. The lease agreement for the $16,000,000 (fair value and present value of the lease payments) machine specified 4 equal payments at the end of each year. The useful life of the machine was expected to be 4 years with no residual value. Barwick's implicit interest rate was 9%. Lease date Fair value and present value of lease payments Lease term Useful life of machine Residual value Barwick's implicit interest rate 1. Determine the amount of each lease payment using Excel's PMT function 3. Prepare an amortization schedule for the 4-year term of the lease. Date 2. Prepare the journal entry for Davidson, Incorporated at the beginning of the lease on January 1, 2024. Date General Journal Debit January ,2024 January 1, 2024 December 31, 2024 December 31, 2025 December 31, 2026 December 31, 2027 Totals 4. Record the first lease payment on December 31, 2024. Date…
Wilcox Ltd finance company purchases a machine for $160,000 at the request of Upland Manufacturing Ltd, which then leases it to Upland for $60,000 per annum for three years. The payments are to be made at the commencement of each year including the first year of the lease period. Wilcox Ltd incurs costs of $1,500 to establish the lease. The lease is non-cancellable and classified as a finance lease by the lessor. The interest rate implicit in the lease is 10%. There is no guaranteed or unguaranteed residual value at the end of the lease period. Required: Prepare the journal entries for Wilcox Ltd to record the initial recognition of lease related assets and interest income for three years under AASB 16/IFRS 16
A lease agreement calls for annual payments of $56,979 over a 6-year period (also the asset's useful life). The lease is signed January 1, 20X1 with the first payment due on that date. The interest rate is 8%, and the PV of lease payments is $284,480. The lessor manufactured the asset at a cost of $270,000. 24. In year 20X1, the lease decreases the lessee's net income by 25. In year 20X1, the lease increases the lessor's net income by,
Skysong Dairy leases its milking equipment from Concord Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $32,500 due at the beginning of each year starting January 1, 2020. 2. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $244,649 and a cost of $267,000 on Concord Finance’s books. It also has an estimated economic life of 15 years and an expected residual value of $15,300, though Skysong Dairy has guaranteed a residual value of $19,700 to Concord Finance. 3. The lease contains no renewal options, and the equipment reverts to Concord Finance upon termination of the lease. The equipment is not of a specialized use. 4. Skysong Dairy’s incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Skysong Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable. A)…
On January 1, 2022, Edward Corporation (lessor) enters into a ten-year lease of equipment to Kirk Corporation (lessee). The equipment has estimated useful life of 15 years. Lease payments are P380,000 per year all payable at the beginning of each year. The fair value of the leased asset on this date P3.132.161. The rate implicit in the lease is 6%. Kirk Guaranteed a residual value of P300,000. 8. How much interest income should Edward recognized in its December 31, 2022 statement of comprehensive income? 165,130 111,968 139,186 125,942 15. Assuming that the lease is a sales type lease and the cost of the asset is P2.500,000 and the residual value is unguaranteed, how much is the balance of lease receivable as of December 31, 2022 and the gross profit? P2,686,921 and P799,681 P2,917,291and P632,161 P2,739,722 and P799,681 P2,955,789 and P632,161
Autumn plc enters a lease on January 1, 2019 to use machinery for its operations. The terms of the lease are as follows: The term of the lease is 4 years. The lease agreement is non-cancellable requiring equal rental payments of $25,711.11 at the beginning of each year (annuity-due basis) The machine had a fair value at the commencement of the lease of $100,000, an estimated economic life of five years and a guaranteed residual value of $5,000 The lease contains no renewal options Autumn’s incremental borrowing rate is 5% per year Autumn uses the straight-line method to depreciate its machinery The lessor sets the annual rental rate of return of 4% per year and Autumn is aware of this rate. Required: Prepare the necessary journal entries for 2019. State two major ratios of Autumn plc that would be affected by the above lease arrangement
Vinubhai
The lessor company signs a sales-type lease agreement on January 1, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $63,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $44,000. The lessor expects to earn a return of 8% on its investment. What is the amount of sales the lessor will record on January 1, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 8%, 8 periods 1.85 0.54 10.64 5.75 6.21
King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. The asset being leased cost Mann $230,000 to produce. Required:1. Determine the price at which the lessor is “selling” the asset (present value of the lease payments).2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?