Delta Corp. signs a four-year licensing agreement with Orion Ltd. Delta Corp. agrees to make annual installment payments of $9,000 at the beginning of each year for four years. The fair value of the agreement is $32,500. Over the four-year contract period, how much interest will Delta Corp. pay? a) $3,500 b) $36,000 c) $9,000 d) $0

Delta Corp. signs a four-year licensing agreement with Orion Ltd. Delta Corp. agrees to make annual installment payments of $9,000 at the beginning of each year for four years. The fair value of the agreement is $32,500. Over the four-year contract period, how much interest will Delta Corp. pay? a) $3,500 b) $36,000 c) $9,000 d) $0

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

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 7C: On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial...

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On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
Company A agrees to enter into an FRA agreement with Company B in which Company A borrows $ 50,000,000 in 6-month time for a period of 9 months, and Company B invests $ 50,000,000 in 6-month time for a period of 9 months. The 6-month interest rate is 0.75% per annum and the 9-month interest rate is 0.90% per annum. (i).What is the interest rate that both companies agreed upon? (ii).Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.81% per annum and the 9-month interest rate is 0.96% per annum, calculate the compensatory payment and which party receives it?
GREENTREE COMPANY acquires a new manufacturing equipment on January 1, 20x6, on instalment basis. The deferred payment contract provides for a down payment of P300,000 and an 8-year note for P3,104,160. The note is to be paid in 8 equal annual instalment payments of P388,020, including 10% interest. The payments are to be made on December 31 of each year, beginning December 31, 20x6. The equipment has a cash price equivalent of P2,370,000. GREENTREE’s financial year-end is December 31. Determine the amount of interest expense to be recognized in 20x6. Your answer GREENTREE COMPANY acquires a new manufacturing equipment on January 1, 20x6, on instalment basis. The deferred payment contract provides for a down payment of P300,000 and an 8-year note for P3,104,160. The note is to be paid in 8 equal annual instalment payments of P388,020, including 10% interest. The payments are to be made on December 31 of each year, beginning December 31, 20x6. The equipment has a cash price equfivalent…
a) Company A agrees to enter into an FRA agreement with Company B in which Company A borrows $ 40,000,000 in 6-month time for a period of 9 months, and Company B invests $ 40,000,000 in 6-month time for a period of 9 months. The 6-month interest rate is 0.77% per annum and the 9-month interest rate is 0.89% per annum. (i). What is the interest rate that both companies agreed upon? (ii). Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.81% per annum and the 9-month interest rate is 0.96% per annum, calculate the compensatory payment and which party receives it? (iii). Suppose that at the expiry date of the FRA, the 6-month interest rate is 0.79% per annum and the 9-month interest rate is 0.86% per annum, calculate the compensatory payment and which party receives it?
Horizon Ltd. signs a four-year lease agreement with Orion Inc. The agreement requires annual beginning-of-the-year payments of $12,000. The fair value of the lease is $44,000. Over the lease period, how much interest will Horizon Ltd. pay?
Easy Composting signs a contract purchasing the right to use, manufacture and sell a proprietry home use composting process developed by EverGreen Industries. Easy Composting estimates that it will earn $120,000 annually (at the end of each year) for the next 7 years. The current market interest rate is 5% for this type of contractual agreement, however, adjustments for uncertanities related to this specific process are estimated at 3%. What is the value in use of this contract to Easy Composting? Answer: $624,197
Telephone Limited signed a contract with Machinery Leasing Company at 1st January 2020 to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the beginning of each year with an interest rate of 15%. The yearly rental payment includes $30,000 of executory costs related to insurance on the machine. The executory costs of $30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company is 31 of December. Required(Round all numbers to the nearest dollar) a) Discuss the nature of this lease to Telephone Limited. b) Discuss the nature of this lease to Machinery Leasing Company. c)…
Winnie Corporation purchases Joshua Company and, as part of the contract, will have to pay Joshua an additional $100,000 if the company achieves certain revenue goals for two years after the acquisition. How should Winnie account for this contingent payment?
General accounting
On January 1, 2022, Blight Stones obtained a franchise from Doug Corporation to sell for 20 years Doug’s product. The initial franchise fee as agreed upon shall be P6,000,000, and shall be payable in cash, P1,000,000, when the contract is signed and the balance in four equal installments thereafter, as evidenced by a noninterest bearing note. The agreement provides that the franchisor shall provide the necessary initial services required under a franchise contract. The agreement also provides that 5% of the revenue from the franchise must be paid to the franchisor. Revenue from the franchise for 2022 was P5,000,000. The present value factor of P1 at 12% for 4 periods 0.6355 The present value factor of P1 ordinary annuity at 12% for 4 periods 3.0373 23) How much is the initial cost of the franchise? 24) How much is the total expenses for the year 2022?
On January 1, 2025, Splish Company contracts to lease equipment for 5 years, agreeing to make a payment of $128,104 at the beginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at $572,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Splish's incremental borrowing rate is 7%, and the implicit rate in the lease is 6%, which is known by Splish. Title to the equipment transfers to Splish at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. (f) What is the value of the lease liability if Splish also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? (Round answers to O decimal places, eg. 5,275.) Lease liability $
On January 1, 2022, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2022. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a straight-line basis, and the obligation is to be reduced on an effective-interest basis. Cage's incremental borrowing rate is 6%, and the company knows that the implicit rate in the lease is 5%. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 8 years and no residual value. Instructions a. Explain the probable relationship of the $550,000 amount to the lease arrangement. b. Prepare the journal entry or entries that Cage should record on January 1, 2022. c. Prepare the journal entries to record depreciation of the leased asset and interest expense for the year 2022. d. Prepare the journal entry to record the lease payment of January 1, 2023, assuming reversing entries are…