"Blossom Corporation entered into a lease agreement on January 1, 2025, to provide Cullumber Company with a piece of machinery. The terms of the lease agreementwere as follows.1. The lease is to be for 3 years with rental payments of $15,322 to be made at the beginning of each year.2. The machinery has a fair value of $62,000, a book value of $40,000, and an economic life of 8 years.3. At the end of the lease term, both parties expect the machinery to have a residual value of $20,000, none of which is guaranteed.4. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature.5. The implicit rate is 4 %, which is known by Cullumber.6. Collectibility of the payments is probable."Prepare the 2025 journal entries for CullumberPrepare the 2025 Journal entries for BlossomSuppose the lease were only for one year instead of 3 years, with just one lease payment at the beginning of the lease term. Prepare any journal entries Cullumber wouldneed, assuming it elects to use the short-term lease option.?

Journal Entries for Cullumber Company Lease Inception on January 1, 2025 Cullumber needs to…

Answered: "Blossom Corporation entered into a…

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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Lewis Corporation entered into a lease agreement on January 1, 2020, to provide Dawkins Company with a piece of machinery. The terms of the lease agreement were as follows. 1. The lease is to be for 3 years with rental payments of $10,521 to be made at the beginning of each year. 2. The machinery has a fair value of $55,000, a book value of $40,000, and an economic life of 8 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value of $30,000, none of which is guaranteed. 4. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. 5. The implicit rate is 6%, which is known by Dawkins. 6. Collectibility of the payments is probable. Instructions a. Evaluate the criteria for classification of the lease, and describe the nature of the lease. b. Prepare the amortization schedules Dawkins will use over the lease term. c. Prepare the 2020…
Sarasota Corporation entered into a lease agreement on January 1, 2020, to provide Ivanhoe Company with a piece of machinery. The terms of the lease agreement were as follows. 1. The lease is to be for 3 years with rental payments of $9,066 to be made at the beginning of each year. 2. The machinery has a fair value of $61,000, a book value of $46,800, an end-of-life salvage value of $0, and an economic life of 8 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value of $39,200, none of which is guaranteed. 4. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. 5. The implicit rate is 6%, which is known by Ivanhoe. 6. Collectibility of the payments is probable. 7. Assume that the lessor uses straight-line depreciation. (a) Evaluate the criteria for classification of the lease, and describe the nature of the…
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. ⚫ The lease agreement specified annual payments of $44,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. • The company had the option to purchase the machine on December 30, 2026, for $53,000 when its fair value was expected to be $68,000, a sufficient difference that exercise seems reasonably certain. • The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the…
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. • The lease agreement specified annual payments of $44,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. • The company had the option to purchase the machine on December 30, 2026, for $53,000 when its fair value was expected to be $68,000, a sufficient difference that exercise seems reasonably certain. • The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the…
Pebworth Co entered into a contract to acquire the right to use an item of plant for a period of three years from 1 April 2022. The contract meets the definition of a lease under IFRS 16 Leases. The present value of the future lease payments on commencement of the lease was $15,462,000 which is also the initial carrying amount of the right-of-use asset. Pebworth Co will also make three rental payments of $6 million per annum which are due to be paid in arrears on 31 March each year. The useful life of the plant is deemed to be five years. There is no option to buy the asset at the end of the lease term. The interest rate implicit in the lease is 8% per annum. What is the total charge to profit or loss in respect of this lease at 31 March 2023?
On January 1, 2025, Windsor Co. leased a building to Wildhorse Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,100,000 (unguaranteed), 2. The leased building has a cost of $3,600,000 and was purchased for cash on January 1, 2025. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $250,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse. 6. Both the lessor and the lessee are on a calendar-year basis. Click here to view factor tables. (For caiculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare the journal entries that Windsor should make in 2025. (List oll debit entries before credit entries. Credit account…
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return?
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? A.P 500,000 B.P 477,826 C.P 559,610 D.P 460,000
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. . The lease agreement specified annual payments of $34,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. . The company had the option to purchase the machine on December 30, 2026, for $43,000 when its fair value was expected to be $58,000, a sufficient difference that exercise seems reasonably certain. . The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 12%. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease llability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare…
Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year. 2. The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value. 3. Vaughn depreciates similar machinery it owns on the straight-line basis. 4. The lessee pays all executory costs. 5. Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate. 6. Vaughn has a December 31 year-end. Required: a. Indicate the type of lease that Vaughn Company has entered into and why. b. Prepare an amortization table for Vaughn in Excel. c. Prepare the journal entries on Vaughn’s books for the first two years of the lease.
Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $569,000, and the fair value of the asset on January 1, 2025, is $682,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock estimates that the expected residual value at the end of the lease term will be $55,000. Shamrock amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Ivanhoe desires a 9% rate of return on its investments. Shamrock's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on…
Angelo Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P2,300,000. On January 1, 2020, Angelo Company leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual payment are due each January 1 and the first payment was made on January 1, 2020. The residual value of the machine is P200,000. The lease terms are arranged so that a return of 12% is earned by Angelo Company. What is the annual lease payment payable in advance required to yield the desired return?

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