Brightway Corporation leased machinery to Sterling Enterprises on January 1, 2015 under a five-year lease ending on January 1, 2020. The first annual lease payment of $950,000 was made on January 1, 2015. The cash selling price of the machinery is $4,100,500, which is equal to the present value of the lease payments at 7%. Brightway purchased the machinery for $3,600,000. For 2015, how much interest revenue should Brightway report? a. $252,030 b. $287,035 c. $320,000 d. $410,050

Brightway Corporation leased machinery to Sterling Enterprises on January 1, 2015 under a five-year lease ending on January 1, 2020. The first annual lease payment of $950,000 was made on January 1, 2015. The cash selling price of the machinery is $4,100,500, which is equal to the present value of the lease payments at 7%. Brightway purchased the machinery for $3,600,000. For 2015, how much interest revenue should Brightway report? a. $252,030 b. $287,035 c. $320,000 d. $410,050

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 8-year period (the useful life of the asset) expiring June 30, 2023. The first of 8 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 6% (the appropriate interest rate) was $4,000,000. 43. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of depreciation and interest expense that Sands should record for the year ended December 31, 2015? a. $400,000 and $206,880 b. $250,000 and $103,440 c. $250,000 and $206,880 d. $240,000 and $103,440 44. What is the amount of profit on the sale and the…
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc. on July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 8-year period (the useful life of the asset) expiring June 30, 2023. The first of 8 equal annual payments of $552,000 was made on July 1,2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 6% (the appropriate interest rate) was $4,000,000. Assuming that Sands, Inc. use straight-line depreciation, what is the amount of depreciation and interest expense that Sands should record for the year ended December 31, 2015? a. 400,000 and 206,880 b. 250,000 and 103,440 c. 250,000 and 206,800 d. 240,000 and 103,440 What is the amount of profit on the sale and the amount of interest…
Skor Co. leased equipment to Douglas Corp. on January 2, 2011, for an 8-year period expiring December 31, 2018. Equal payments under the lease are $600,000 and are due on January 2 of each year. The first payment was made on January 2, 2011. The cost of the equipment is $2,800,000. The lease is appropriately accounted for as a sales-type lease. The present value of the lease payments is $3,300,000. What amount of net profit on the sale should Skor report for the year ended December 31, 2011? a. $720,000 b. $500,000 c. $90,000 d. $600,000 e. $2,800,000
Sandiago Co leased the equipment to Dedi Inc, on April 1, 2016. The lease, properly accounted for as a sale by Sandiago, has a period of 8 years ending March 31, 2024. The first of 8 equal annual payments is Rp 17,500,000 per year (excluding implementation costs) was carried out on April 1, 2016. The cost of equipment for Sandiago was Rp. 94,000,000. The equipment has an estimated useful life of 8 years with no salvage value, Sandiago uses straight-line depreciation and depreciates a full year in the year of purchase. The cash selling price of this equipment is IDR 102,690,000. Required: (1) Prepare the journal entries needed to record the lease on Sandiago's books (2) How much interest income will Sandiago recognize in 20167
Low Falls Corporation (lessor) entered into a lease agreement on January 1, 2017, to provide Amazon Fleet Company (lessee) with a piece of machinery. The terms of the lease agreement were as follows. The lease is to be for 3 years with rental payments of $12,400 to be made at the beginning of each year. The machinery has a fair value of $70,010, a book value of $50,000, and an economic life of 7 years. At the end of the lease term, both parties expect the machinery to have a residual value of $40,000, $20,000 of which is guaranteed ($20,000 unguaranteed). 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. The implicit rate used by Low Falls is 5%, which is known by Amazon Fleet, and collectability of the payments is probable. Amazon Fleet’s incremental borrowing rate is 6%. Assume the lessor depreciates the asset on a cost basis (not fair value). Q: When testing the lease for…
Low Falls Corporation (lessor) entered into a lease agreement on January 1, 2017, to provide Amazon Fleet Company (lessee) with a piece of machinery. The terms of the lease agreement were as follows. The lease is to be for 3 years with rental payments of $12,400 to be made at the beginning of each year. The machinery has a fair value of $70,010, a book value of $50,000, and an economic life of 7 years. At the end of the lease term, both parties expect the machinery to have a residual value of $40,000, $20,000 of which is guaranteed ($20,000 unguaranteed). 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. The implicit rate used by Low Falls is 5%, which is known by Amazon Fleet, and collectability of the payments is probable. Amazon Fleet’s incremental borrowing rate is 6%. Assume the lessor depreciates the asset on a cost basis (not fair value). Q: When testing the lease for…
Rick Kleckner Corporation recorded a right-of-use asset for $300,000 as a result of a finance lease on December 31, 2019. Kleckner's incremental borrowing rate is 8%, and the implicit rate of the lessor was not known at the commencement of the lease. Kleckner made the first lease payment of $48,337 on December 31, 2019. The lease requires eight annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Kleckner's December 31, 2020, entries.
Sheridan Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $31,448 at the beginning of each year. The first payment is received on January 1, 2020. Sheridan had purchased the machine during 2016 for $116,000. Collectibility of lease payments by Sheridan is probable. Sheridan set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sheridan at the termination of the lease. Compute the amount of the lease receivable.
Ball Company leased machinery to Denver Company on July 1, 2021, for a ten-year period expiring June 30, 2031. Equal annual payments under the lease are $250,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest used by Harter and Stine is 9%. The lease receivable before the first payment is $1,750,000 and the cost of the machinery on Ball’s accounting records was $1,550,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Ball, what amount of interest revenue would Ball record for the year ended December 31, 2021? a. $67,500 b. $135,000 c. $157,500 d. $0
On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $958,158. Worcester's borrowing rate for similar transactions is 10%.The lease agreement specified four annual payments of $200,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 10% is $697,370.On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 9%. (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 Worcester Construction on January 1, 2023, to adjust its lease liability for the lease…