Date of lease – 7/1/19 Term – 3 years (expires 7/1/22) Semi-annual lease payments of $100,000 every 7/1 and 1/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st
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- Date of lease – 7/1/19
- Term – 3 years (expires 7/1/22)
- Semi-annual lease payments of $100,000 every 7/1 and 1/1
- Lessee’s incremental borrowing rate – 6%
- Lessor’s implicit
rate of return – 5% (NOT known to lessee) - Lessor’s cost of asset leased - $250,000
- Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000).
- Lessee and Lessor both have a December 31st
Requirements:
- Assume the lease is treated as a finance lease:
- Determine the present value of the lease payments
- Prepare an amortization table for the lease payments for the lessee
- Determine the fair value of the lease from the lessor’s perspective
- Prepare the lessor’s amortization table for this lease
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- Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.Sales-Type Lease with Guaranteed Residual Value Calder Company, the lessor, enters into a lease with Darwin Company, the lessee, to provide heavy equipment beginning January 1, 2017. The lease is appropriately classified as a sales-type lease. The lease terms, provisions, and related events are as follows: The lease is noncancelable, has a term of 8 years, and has no renewal or bargain purchase option. The annual rentals are 65,000, payable at the end of each year. The interest rate implicit in the lease is 15%. Darwin agrees to pay all executory costs directly to a third party. The cost of the equipment is 280,000. The fair value of the equipment to Calder is 308,021.03. Calder incurs no material initial direct costs. Calder expects that it will be able to collect all lease payments. Calder estimates that the fair value at the end of the lease term will be 50,000 and that the economic life the equipment is 9 years. This residual value is guaranteed by Darwin. The following present value factors are relevant: PV of an ordinary annuity n = 8, i = 15% = 4.487322 PV n = 8, i = 15% = 0.326902 PV n = 1, i = 15% = 0.869565 Required: 1. Determine the proper classification of the lease. 2. Prepare a table summarizing the lease receipts and interest income earned by Calder for this lease. 3. Prepare journal entries for Calder for the years 2019, 2020, and 2021. 4. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the present value of next years payment approach to classify the lease receivable as current and noncurrent. 5. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the change in present value approach to classify the lease receivable as current and noncurrent.Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
- Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.Lease facts: Date of lease – 6/1/19 Term – 3 years (expires 6/1/22) Semi-annual lease payments of $100,000 every 6/1 and 12/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st Requirements: Assume the lease is treated as a finance lease: Determine the present value of the lease payments Prepare an amortization table for the lease payments for the lessee Prepare all of the lessee’s required journal entries for 2019 and 2020 Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease Prepare all of the lessor’s required journal entries for 2019 and 2020
- Lease facts: Date of lease – 6/1/19 Term – 3 years (expires 6/1/22) Semi-annual lease payments of $100,000 every 6/1 and 12/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st Requirements: Assume the lease is treated as a finance lease: Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease Prepare all of the lessor’s required journal entries for 2019 and 2020Date of entering lease 1 July 2019 Duration of lease 5 years Life of asset 6 years Unguaranteed residual value $40,000 Lease payments inception (at the start) $60,000 Annual payments (5) $65,000 Implied rate 11.0 % Required: Determine the Fair Value (rounded off) of the leased asset.John Limited leses an asset from Smith Limited. The lease agreement has the following terms: lease term is 3 years estimated economic life of the leased asset is 6 years 3 x annual rental payments of $24 000 each payment is one year in arrears İncluded in the amount of annual rental payments is an amount of $1 000 to cover repairs and maintenance of the leased asset residual value at the end of the lease term is not guaranteed by the lessee John Ltd incurs initial direct costs of $500 interest rate implicit in the lease is 7% At the commencement of the lease, the amount of lease liability would be measured as: Group of answer choices $60 359. $62 983 $60 859 $64 584
- Exhibit Leased assets have an expected life of 5 years Depreciation is straight line Annual lease payment is $1,400 Interest rate is 12% 3) Find the total expense in Year 1 if exhibit refers to an Operating Lease 4) Find the total expensee in Year 1 if exhibit refers to a Capital LeaseAssume the following: 2,000 SF rentable area, 4-year triple net lease at $18.00 p.s.f. per year, with monthly payments ($1.50 per month). Tenant improvements paid by tenant at lease commencement (that will not be recovered): $40,000, 8% discount rate is appropriate What is "effective" rent p.s.f.? Assume the following: 2,000 SF rentable area, 4-year triple net lease at $18.00 p.s.f. per year, with monthly payments ($1.50 per month). Tenant improvements paid by tenant at lease commencement (that will not be recovered): $40,000, 8% discount rate is appropriate What is "effective" rent p.s.f.? $23.82 $24.05 $23.28 $22.98On January 1, 20X4, Kangaroo Inc. (KI) entered into a lease agreement contract that entitled it to use equipment. Details of the contract follow: Lease payment, including maintenance agreement Maintenance agreement included in lease payment Implicit rate in the lease (not known) Incremental borrowing rate Lease term. Economic life of equipment Guaranteed residual value Expected pay-out on residual value guarantee Option to purchase First annual payment due $85,000 $3,000 4% 5% 6 years 7 years $20,000 $6,000 No Commencement date KI's year-end is December 31. Kl elects to adopt the practical expedient available to it and not to separately report the lease and non-lease components in the contract. What is the amount that it will record for depreciation of this right-of-use asset for its year-ended December 31, 20X4? a $77.988 b $65.355 $76.247 d. $73.582.
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