(a)Prepare a lease payments schedule for Mark’s payments (b)Show the journal entries for the year ended 30 June 2020
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Mark wanted to expand his business and so he arranged to lease a special machine from Twain. This machine would enable him to produce his special furniture in half the time he previously used to manufacture the furniture items. To obtain the item Mark agreed to make an annual payment of $39,000 in arrears for three years and agreed to make a guaranteed residual payment of $16,000. The lease commenced on 1 July 2019. The financial year ended 30 June each year. The residual value of the asset was $22,000 and the interest rate on the lease was 7%. The fair value of the machine was $120,307.
Required:
(a)Prepare a lease payments schedule for Mark’s payments
(b)Show the
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- Claude leased a facility from ML partnership in January 1, 2018. Terms of the lease were as follows: Annual rental 300,000 Annual real property tax assumed and paid by Claude 50,000 Security deposit 200,000 Lease term 12 years On January 1, 2018, Claude paid the annual rental for 2018 and 2019 including the security deposit (non-refundable). In addition to annual rental and real property taxes, part of the lease was for Claude to improve the facility. The improvement was completed on January 1, 202O. Details of the improvements were as follows: Cost of leasehold improvement - 6,000,000 Estimated useful life of improvement - 15 years Determine the income to be reported by ML partnership in 2020 assuming the company opted to report income from improvement using the spread-out method.On January 1, 2020, Irwin Animation sold a truck to Peete Finance for $35,000 and immediately leased it back. The truck was carried on Irwin's books at $28,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Irwin at lease-end. The lease requires three equal rental payments of $8,696 at the end of each year (first payment on January 1, 2021). The appropriate rate of interest is 6%, the truck has a useful life of 5 years, and the residual value at the end of the lease term is expected to be $14,000, none of which is guaranteed. Prepare Irwin's 2020 journal entries.Charlotte Corp., a machinery dealer, leased a machine to Eleanor Corp. on January 1, 2022. The lease is for an 8-year period, is noncancelable and requires equal annual payments of $35,013 at the beginning of each year. The first payment is received on January 1, 2022. Charlotte had purchased the machine during 2021 for $160,000. The FMV of the machine is 200,000. The present value of the minimum lease payments is also $200,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Charlotte. Charlotte set the annual rental to ensure an 11% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Charlotte at the termination of the lease. Required: What type of lease is this for Charlotte (lessor) and why Prepare all of Charlotte’s journal entries for 2022.
- Vaughn Corporation enters into a 6-year lease of equipment on December 31, 2019, which requires 6 annual payments of $41,600 each, beginning December 31, 2019. In addition, Vaughn guarantees the lessor a residual value of $19,800 at the end of the lease. However, Vaughn believes it is probable that the expected residual value at the end of the lease term will be $9,900. The equipment has a useful life of 6 years. Prepare Vaughns' December 31, 2019, journal entries assuming the implicit rate of the lease is 10% and this is known to Vaughn. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.)Ayayai Incorporated leases a piece of equipment to Kingbird Corporation on January 1, 2020. The lease agreement called for annual rental payments of $6,823 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 5 years, a fair value of $26,300, a book value of $21,300, and both parties expect a residual value of $8,300 at the end of the lease term, though this amount is not guaranteed. Ayayai set the lease payments with the intent of earning a 6% return, and Kingbird is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e.g. 5,275.)On January 1, 2023, Precision Pumps leases nonspecialized pumping equipment to Mega Construction. The equipment is delivered on January 1. The lease term is 4 years with no renewal or purchase options, and title to the leased asset is retained by the lessor at the end of the lease term. The lease requires annual fixed rental payments of $8500 per year beginning on January 1, 2023, and then December 31 of each year starting on December 31, 2023. The fair value of the equipment is $40,430 and has a carrying amount on Precision's books of $27,492. The equipment has a remaining life of 8 years. The estimated residual value of the equipment is $14,700. The lessee does not guarantee the residual value, but Precision secured an unrelated third party to guarantee $14,700; collection of this guaranteed residual value and lease payments are reasonably certain. The rate implicit in the lease is 9%. There are no prepaid rentals, and neither party to the agreement pays initial direct costs.What is…
- Metlock Corporation manufactures drones. On December 31, 2019, it leased to Althaus Company a drone that had cost $102,700 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires 5 equal annual rentals of $41,200 payable each December 31, beginning December 31, 2019. An interest rate of 10% is implicit in the lease agreement. Collectibility of the rentals is probable.Prepare Metlock’s December 31, 2019, journal entries.On Jan 1, 2016, Eminem leased his vacant lot for a period of 12 years to Dr. Dre at an annual rate of P2,400,000. The lease contract provides, among others that Dr. Dre will construct a 5-storey building for paring purposes at a cost of P36,000,000.Ownership of the building shall belong to Eminem upon the expiration or termination of the lease contract. The building was completed on Jan 1,2018 with an estimated useful life of 15 years. It was also agreed that Juan will pay the following in 2016: P 4,800,000 representing rental payment for two (2) years, and P 2,400,000 Security deposit. Eminem shall report total income from the lease in 2016 at?" A.2,400,000B.4,800,000C.7,200,000D.43,200,000On January 1, James Industries leased equipment to a customer for a six-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $760,000 and has an expected useful life of eight years. Its normal sales price is $760,000. The residual value after six years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 8%. Calculate the amount of the annual lease payments. Chart to Use: Table or calculator function: Amount to be recovered (fair value) Present value of the residual value Table or calculator function: S Amount to recovered through periodic lease payments Lease Payment Amount of each annual lease payment. Residual Value n= i= n= i= Present value Lease Payments
- 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 are $31,000, payable at the beginning of each year. • The interest rate implicit in the lease is 12%. • 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 lessor is $162,500, and the fair value is approximately $172,500. • 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 $31,000 discounted at…Jelly Co. processes jam and sells it to the public. Jelly leases equipment used in its production processes from Squishy, Inc. This year, Jelly leases a new piece of equipment from Squishy. The lease term is 5 years and requires equal rental payments of $15,000 at the beginning of each year. In addition, there is a renewal option to allow Jelly to keep the equipment one extra year for a payment at the end of the fifth year of $10,000 (which Jelly is reasonably certain it will exercise). The equipment has a fair value at the commencement of the lease of $76,024 and an estimated useful life of 7 years. Squishy set the annual rental to earn a rate of return of 5%, and this fact is known to Jelly. The lease does not transfer title, does not contain a bargain purchase option, and the equipment is not of a specialized nature. Which of the 5 lease tests does the lease qualify as a finance lease for? Choose all that apply. Transfer of Ownership Test [Select ] Bargain Purchase Option Test […Marin Corporation manufactures drones. On December 31, 2019, it leased to Althaus Company a drone that had cost $118,900 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires 5 equal annual rentals of $41,800 payable each December 31, beginning December 31, 2019. An interest rate of 9% is implicit in the lease agreement. Collectibility of the rentals is probable.Prepare Marin’s December 31, 2019, journal entries.
