CASE 2: On January 1, 2020, EF Corp. leased an equipment for 5 years at semi-annual rental of $325,000 payable every June 30 and December 31. The equipment had an estimated useful life of 7 years. EF Corp. has an option to purchase the equipment from the lessor by paying the lessor $200,000 at the lease expiration date. The lessee paid lease bonus amounting to 280,000 and direct lease expense which included installation and commissioning costs amounting to $125,000. The lessor will however reimburse EF Corp. 15% of the direct lease expense as a lease incentive. The annual implicit lease rate on the lease known to both parties at the lease inception was at 10% while the incremental borrowing rate of the EF Corp. was at 12%. The asset had an estimated salvage value of P100,000 after 5 years and P60,000 after 7 years. Requirements: If at lease inception, EF Corp. is reasonably certain to exercise the purchase option: (Use a PV FACTOR rounded off to 4 decimal places) 15. Entry to record the exercise of the purchase option at the lease expiration 16. Entry to record the non-exercise of the purchase option at the lease expiration
CASE 2: On January 1, 2020, EF Corp. leased an equipment for 5 years at semi-annual rental of $325,000 payable every June 30 and December 31. The equipment had an estimated useful life of 7 years. EF Corp. has an option to purchase the equipment from the lessor by paying the lessor $200,000 at the lease expiration date. The lessee paid lease bonus amounting to 280,000 and direct lease expense which included installation and commissioning costs amounting to $125,000. The lessor will however reimburse EF Corp. 15% of the direct lease expense as a lease incentive. The annual implicit lease rate on the lease known to both parties at the lease inception was at 10% while the incremental borrowing rate of the EF Corp. was at 12%. The asset had an estimated salvage value of P100,000 after 5 years and P60,000 after 7 years. Requirements: If at lease inception, EF Corp. is reasonably certain to exercise the purchase option: (Use a PV FACTOR rounded off to 4 decimal places) 15. Entry to record the exercise of the purchase option at the lease expiration 16. Entry to record the non-exercise of the purchase option at the lease expiration
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 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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Ive been rejected many times. Please kindly answer in good accounting form thankyou
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Step 1: Lease
VIEWStep 2: Journal entry to record the exercise of the purchase option at the lease expiration:
VIEWStep 3: Table showing the copy of the right-of-use asset:
VIEWStep 4: Table showing the amortization schedule:
VIEWStep 5: Table showing depreciation expense:
VIEWStep 6: Journal entry to record the non-exercise of the purchase option at the lease expiration:
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