Crestwood Electronics Inc. leases a machine on January 1, Year One, for six years under an operating lease. The lease agreement requires annual payments of $5,000 for the first year and then $12,000 per year thereafter. The present value of these payments, based on a reasonable interest rate of 9%, is assumed to be $45,000. Since this is classified as an operating lease, how much lease expense should the company recognize for Year One?

Crestwood Electronics Inc. leases a machine on January 1, Year One, for six years under an operating lease. The lease agreement requires annual payments of $5,000 for the first year and then $12,000 per year thereafter. The present value of these payments, based on a reasonable interest rate of 9%, is assumed to be $45,000. Since this is classified as an operating lease, how much lease expense should the company recognize for Year One?

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 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

See similar textbooks

Similar questions

Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Recognize for year one ?
On January 1, 2021, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $300,000 for the machine and is leasing it to Zone for $33,000 per year, an amount that will return 8% to Calloway. The present value of the lease payments is $300,000. The lease payments are due each January 1, beginning in 2021. What is the appropriate interest entry on December 31, 2021? Multiple Choice Cash Interest revenue. Cash Interest receivable Interest receivable Interest revenue. Interest receivable Interest revenue 24,000 21,360 21,360 24,000 24,000 21,360 21,360 24,000
Sunland Company leases equipment from Bridgeport Inc. for five years starting on January 1, 2025. The lease is properly classified as a finance/sales-type lease. The terms of the lease are as follows: a) Bridgeport will pay $2500 in legal fees to execute the lease. b) Bridgeport will incur $1500 of lease documentation costs after the execution of the lease. c) Sunland will pay commissions to the lease negotiator of $2500. d) Sunland must prepay the last month's rental payment of $12500. e) Sunland pays internal engineering costs of $6250 to identify any structural considerations when installing the equipment. f) The initial measurement of the liability for Sunland is $150000. What amount will be reported for Sunland's right-of-use asset at the commencement date? O $168750 O $150000 O $171250 O $169000
Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, non-cancelable, and requires equal rental payments of $30,000 due at the beginning of each year starting January 1, 2022. 2. The equipment has a fair value at the commencement of the lease (January 1, 2022) of $222,039 and a cost of $180,000 on King Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $5,000, though Goring Dairy has guaranteed a residual value of $10,000 to King Finance. 3. The lease contains no renewal options, and the equipment reverts to King Finance upon termination of the lease. The equipment is not of a specialized use. 4. Goring Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Goring Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable.Instructions (a) Evaluate the criteria for…
Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, non-cancelable, and requires equal rental payments of $30,000 due at the beginning of each year starting January 1, 2022. 2. The equipment has a fair value at the commencement of the lease (January 1, 2022) of $222,039 and a cost of $180,000 on King Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $5,000, though Goring Dairy has guaranteed a residual value of $10,000 to King Finance. 3. The lease contains no renewal options, and the equipment reverts to King Finance upon termination of the lease. The equipment is not of a specialized use. 4. Goring Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Goring Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable.Instructions (a) Evaluate the criteria for…
Recognize for year one ? General accounting
On January 1, 2025, Sandhill Company leased equipment to Wildhorse Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Wildhorse has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2025. 3. The fair value of the equipment on January 1, 2025, is $165,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Wildhorse depreciates all of its equipment on a straight-line basis. 5. 6. Sandhill set the annual rental to ensure a 6% rate of return. Wildhorse's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31.
On January 1, 2020, Ivanhoe Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $7,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $160,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Ivanhoe set the annual rental to ensure a 6% rate of return. Flynn’s incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee’s accounting periods end on December 31.Click here to view factor tables.(For calculation purposes,…
The lessor company leases a building to the lessee company on 1/1/2021. The lessee will make ten annual rental payments of $77,000 at the beginning of each year, starting from 1/1/2021. Both parties expect a residual value of $17,000 at the end of the lease term, though this amount is not guaranteed. The lessor company set the lease payments with the intent of earning a 10% return, and the lessee is aware of this rate. Suppose the lessee incurs initial direct costs of $4,360 related to the lease. What is the amount for Right-of-Use Asset the lessee will record on 1/1/2021? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 10 periods 2.59 0.39 15.94 6.14 6.76
On January 1, 2020, Crane Company leased equipment to Flynn Corporation. The following information pertains to this lease: 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $9,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $160,000, and its cost is $140,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Crane set the annual rental to ensure a 6% rate of return. Flynn’s incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable Prepare all the necessary journal entries for Flynn to record the lease on 1/1/ 2020, to record the lease payment on 1/1/2020, to record amortization of the…