Crane Co. processes jam and sells it to the public. Crane leases equipment used in its production processes from Larkspur, Inc. This year, Crane leases a new piece of equipment from Larkspur. The lease term is 5 years and requires equal rental payments of $17.000 at the beginning of each year. In addition, there is a renewal option to allow Crane to keep the equipment one extra year for a payment at the end of the fifth year of $13.000 (which Crane is reasonably certain it will exercisel. The equipment has a fair value at the commencement of the lease of $87,467 and an estimated useful life of 7 years. Larkspur set the annual rental to earnarate of return of 5%, and this fact is known to Crane. The lease does not transfer title, does not containa bargain purchase option, and the equipment is not of a specialized nature.

Crane Co. processes jam and sells it to the public. Crane leases equipment used in its production processes from Larkspur, Inc. This year, Crane leases a new piece of equipment from Larkspur. The lease term is 5 years and requires equal rental payments of $17.000 at the beginning of each year. In addition, there is a renewal option to allow Crane to keep the equipment one extra year for a payment at the end of the fifth year of $13.000 (which Crane is reasonably certain it will exercisel. The equipment has a fair value at the commencement of the lease of $87,467 and an estimated useful life of 7 years. Larkspur set the annual rental to earnarate of return of 5%, and this fact is known to Crane. The lease does not transfer title, does not containa bargain purchase option, and the equipment is not of a specialized nature.

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 March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
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Kubby Company specializes in leasing large storage units to other businesses. Kubby entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $10,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $2,507 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $10,000, Kubby's implicit rate of return on the lease of 6%. The following is a correct, complete amortization schedule created by Kubby. Date Lease Payment Interest (6%) on Outstanding Lease Receivable Reduction of Lease Receivable Balance of Lease Receivable 1/1/20 $10,000 1/1/20 $12,507 $12,507 7,493 1/1/21 2,507 $1.450 2,057 5,436 1/1/22 2,507 326 2,181 3,255 1/1/23 2,507 195 2,312 943 12/31/23…
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