Callaway Golf Co. leases telecommunications equipment from Sandhill Company. Assume the following data for equipment leased from Sandhill Company. The lease term is 5 years and requires equal rental payments of $30,380 at the beginning of each year. The equipment has a fair value at the commencement of the lease of $147,000, an estimated useful life of 8 years, and a guaranteed residual value at the end of the lease of $15,190. Sandhill set the annual rental to earn a rate of return of 6%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain purchase option, and is not a specialized asset. How should Callaway classify this lease? ✓ Finance lease Operaing lease Sales-type lease

Callaway Golf Co. leases telecommunications equipment from Sandhill Company. Assume the following data for equipment leased from Sandhill Company. The lease term is 5 years and requires equal rental payments of $30,380 at the beginning of each year. The equipment has a fair value at the commencement of the lease of $147,000, an estimated useful life of 8 years, and a guaranteed residual value at the end of the lease of $15,190. Sandhill set the annual rental to earn a rate of return of 6%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain purchase option, and is not a specialized asset. How should Callaway classify this lease? ✓ Finance lease Operaing lease Sales-type 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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Sage Hill Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 5 years and requires equal rental payments of $68,401 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $290,000, an estimated useful life of 5 years, and no estimated residual value. The appropriate interest rate is 9%.Click here to view factor tables.Prepare Sage Hill’s 2019 and 2020 journal entries, assuming Sage Hill depreciates similar equipment it owns on a straight-line basis. (Credit account titles are automatically indented when the 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 0 decimal places, e.g. 5,275.)
A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 7%. The lessor's fiscal year is the calendar year. The lessor manufactured this asset at a cost of $144,000. Required: a. Determine the price at which the lessor is "selling" the asset (present value of the lease payments). b. Create a partial amortization table through the second payment on January 1, Year 2. c. What would be the increase in earnings that the lessor would report in its income statement for the first year ended December 31 (ignore taxes)? 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) Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine the price at which the lessor is "selling" the asset (present value…
The Sirap Co. leased equipment from the Xylo co. with a fair market value of $200,000. The lease contract has payments of $30,000 at the end of each year. The terms are 10 years at 10% interest rate. There is no bargain purchase agreement and the lessor will repossess the equipment. The equipment has a useful life of 15 years. Use the 5 criteria and determine if the lease qualifies as a financing lease.
Huskies Together Company leased equipment from Caterpillar, beginning on December 31, 2020. The lease term is 4 years and requires equal rental payments of $41,933 at the beginning of each year of the lease, starting on the commencement date (December 31, 2020). The equipment has a fair value at the commencement date of the lease of $150,001, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 8%. Prepare Huskies Together's 2020 and 2021 journal entries, assuming Huskies Together depreciates similar equipment it owns on a straight-line basis. Show all your work for partial credits.
On 31 December 20X1, Lessee Ltd. entered into a lease agreement by which Lessee leased a jutling machine for six years. Annual lease payments are $20,000, payable at the beginning of each lease year (31 December). At the end of the lease, possession of the machine will revert to the lessor. The normal economic life for this type of machine is 8 to 10 years. At the time of the lease agreement, jutling machines could be purchased for approximately $90,000 cash. Equivalent financing for the machine could have been obtained from Lessee's bank at 14%. Lessee uses straight-line depreciation for its jutling machines. Required: 1. Prepare a lease liability amortization table for the lease. 2. Prepare all journal entries relating to the lease and the leased asset for 20X1, 20X2, and 20X3. 3. How would the amounts relating to the leased asset and lease liability be shown on Lessee's statement of financial position at 31 December 20X4?
Braun Company acquired a piece of equipment from Tipper Company under a lease. The lease requires five annual lease payments of $30,000 with the first payment due when the lease begins, on January 1, 2022. Future lease payments are due on January 1 of each year of the lease term. The interest rate in the lease is 6%. What amount should Braun Company debit the equipment account on the date of acquisition?
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: Year 2: Year 3: Year 4: $15,500 $20,500 $25,500 $30,500 An appropriate discount rate is 7 percentage, yielding a present value of $76,475. a-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset? Initial value of the right-of-use asset a-2. If the lease is an operating lease, what will be the initial value of the lease liability? Initial value of the lease liability
Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 10%. d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to…
A lease agreement that qualifies as a finance lease calls for annual lease payments of $36,000 over a four-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. Required: Determine the present value of the lease upon the lease's inception. Create a partial amortization table through the second payment on January 1, Year 2. If the lessee's fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)?
Flint Company leased equipment to Land Company for a ﬁve-year period. Flint paid $9,393 for the equipment, which equals its current carrying value (with estimated useful life of ﬁve years). The lease commenced on January 1 of Year 1. Flint uses a target rate of return of 8% in all lease contracts. The ﬁrst payment was received on January 1 of Year 1, and Flint’s accounting periods end on December 31. The lease contract contains a purchase option stating that Land Company can purchase the equipment for $800 on January 1 of Year 6, at which time its residual value is estimated to be $1,300. It is reasonably certain that Land Company will exercise the purchase option at the end of the lease term. a. Compute the annual payment calculated by the lessor.
Sage Hill Company leases an automobile with a fair value of $12,257 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $250 per month (at the beginning of each month). 3. Sage Hill guarantees a residual value of $1,190. Delaney expects the probable residual value to be $1,190 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Sage Hill’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. Click here to view factor tables. (a) What is the nature of this lease to Sage Hill? The nature of this lease is a/an select a nature of the lease lease. eTextbook and Media List of Accounts Attempts: 2 of 3 used What is the present value of the lease payments to determine the lease liability?