Exercise 13-3 Lessee accounting and reporting for a finance lease (LO 13-4, LO 13-6) East Company leased a new machine from North Company on May 1, 20X1, under a lease with the following information: Lease term Annual rental payable at beginning of each lease year Useful life of machine Incremental interest rate Implicit interest rate 10 years $ 40,000 Right-of-use finance lease asset 12 years 12 % 15 % East has the option to purchase the machine on May 1, 20Y1, by paying $50,000, which approximates the expected fair value of the machine on the option exercise date. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required: What is the amount of the right-of-use finance lease asset on May 1, 20X1? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

Exercise 13-3 Lessee accounting and reporting for a finance lease (LO 13-4, LO 13-6) East Company leased a new machine from North Company on May 1, 20X1, under a lease with the following information: Lease term Annual rental payable at beginning of each lease year Useful life of machine Incremental interest rate Implicit interest rate 10 years $ 40,000 Right-of-use finance lease asset 12 years 12 % 15 % East has the option to purchase the machine on May 1, 20Y1, by paying $50,000, which approximates the expected fair value of the machine on the option exercise date. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required: What is the amount of the right-of-use finance lease asset on May 1, 20X1? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

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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Instruction: Prepare the amortization schedule
7 Company A (lessee) has reached a lease agreement with Company B (lessor) to lease a new carpet weaving machine for five years beginning January 1, Year 1. The present value of the weaving machine is $47,945 18 The following amortization schedule was developed using the lease agreement COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease C Date January 1, Year 1 January 1, Year 1 $10,355.57 January 1, Year 2 10,355.57 January 1, Year 3 10,355.57 January 1, Year 4 10,355.57 January 1, Year 5 10,355.57 January 1, Year 6 2,500.00 Payment Interest Reduction of Lease Liability $10,355.57 $0.00 1,585.78 8,769.79 1,234.99 9,120.58 870.16 9,485.40 490.75 9,864.82 96.15 2,403.85 $54,277.83 $4,277.83 $50,000.00 Lease Liability O Debit Inventory for $2,403; Credit Lease Receivable for $2,403 Debit Lease Receivable for $2,403; Credit Inventory for $2,403 O Debit Inventory for $2,500; Credit Lease Receivable for $2,500 O Debit Lease Receivable for $2,500; Credit Inventory for…
b. Net investment in the lease on January 1, 20x1 d. - Sales, Cost of sales, and Gross profit recognized o Sales type lease 2. On January 1, 20x1, Soap Financing Co. leased a machine to Sanitizer, Inc. Information on the lease is shown below. Cost of machine P600,00 Useful life of machine 5 years 4 years Lease term Annual rent payable ạt the end of each year P200,00 Market rate of interest 10% Residual value at the end of the lease term P40,000 term. The lease is classified as sales type lease. value is (1) Guaranteed and (2) Unguaranteed: a. Gross investment in the lease on January 1, 20x1 b. Net investment in the lease on January 1, 20×1 Soap Co. over the lease term on the lease E. Journal entries in Soap's books at the commencemen
Problem 3. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co leased equipment to XYZ, Inc. Information on the lease is shown below: Cost of Equipment P330, 647 5 years Useful Life of Equi pment Lease Term 4 years Annual Rent Payable at the end of each year 100,000 Interest Rate Implicit in the lease 10% Residual Value 20,000 The equipment will revert back to АВС at the end of the lease term. The lease is classified as direct financing lease. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross Investment in the lease on January 1, 20x1 Net Investment in the lease on January 1, 20x1 Unearned Interest income on January 1, 20x1 b. c. d. Prepare the journal entries on January 1, 20x1 and December 31, 20х1 е. Prepare the journal entry on December 31, 20x4 if the fair value of the residual value i. P20,000 ii. P5,000
Direct Finance Lease – Lessor (PAS 17 and PFRS 16)Problem 18. On January 1,2011, SM leased an equipment to RFM Inc. with the following details:Cost of Machinery P3,760,100Residual value – guaranteed 400,000Useful life and lease term 4 yearsImplicit interest rate 10%Annual rental is payable in advance on January 1Required: Based on the result of your audit, determine the following:____________1. Annual Rental____________2. Gross Receivable or Investment____________3. Unearned Interest____________4. Interest Income on 2011____________5. Carrying Value of Lease Receivable on January 1,2012
Direct Finance Lease - Lessor (PAS 17 and PFRS 16) Problem 18. On January 1,2011, SM leased an equipment to RFM Inc. with the following details: Cost of Machinery Residual value – guaranteed Useful life and lease term P3,760,100 400,000 4 years 10% Implicit interest rate Annual rental is payable in advance on January 1 Required: Based on the result of your audit, determine the following: 1. Annual Rental 2. Gross Receivable or Investment 3. Unearned Interest 4. Interest Income on 2011 5. Carrying Value of Lease Receivable on January 1,2012
A-2
Problem 3: ABC Co. leased a new machine from XXX Inc. on January 1, 20X1, under a lease with the following information: Lease term 10 years Annual rent payable at the end of each year P 80,000 Useful life of the machine 12 years Implicit interest rate 14% Lessee’s incremental borrowing rate 12% The annual rental payment includes P 6,000 to cover maintenance costs. The maintenance costs transfer services to ABC. The amount charged reflects the stand alone selling price of the maintenance services. Requirements: Provide the entries in 20X1 and 20X2. Determine the current and non-current portions of the lease liability on December 31, 20X1.
Example: A company leased an asset to another company on 1 January 20X1 on the following terms. Lease term 4 years Inception of lease 1.1.X1 Annual instalments in advance Rs. 22,000 Residual value of asset as guaranteed by lessee Rs. 10,000 Expected residual value at end of lease Rs. 12,000 Fair value of the asset Rs. 82,966 Initial direct costs incurred by the lessor Rs. 700 Interest rate implicit in the lease 11% Requirements a) Calculate the unguaranteed residual value and the net investment in the lease as at 1 January 20X1 b) Prepare extracts from the financial statements of the lessor for the year ended 31.12.X1 (excluding notes)
Question Content Area A six-year operating lease requires annual rent payments of $15,000 for years 1, 2, and 3, and annual rent payments of $10,000 for years 4, 5, and 6. The agreement also requires the lessor to pay a $2,800 annual insurance premium for the leased property. Which of the following amounts should be recognized as the rental revenue in year 1 by the lessor? $10,000 $16,800 $15,000 $13,500
Compute the following Total interest income to be recognized over the lease term
Problem 4. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co. leased e quipment to XYZ Inc. Information on the lease is shown below. Cost of Equipment P3 00,000 Useful Life of Equi pment 5 years Lease Term 4 years Annual rent payable at the end of each year 100,000 Market rate of interest 10% Residual Value 20,000 The equipment will revert back to ABC at the end of the lease term. The lease is classified as sales type lease. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross investment in the lease on Januar y 1, 20x1 b. Net-inves tment in the lease on January 1, 20x1 c. Total interest income to be recognized over the lease term d. Sales, cost of sales and gross profit recognized on the lease e. Journal entry on January 1, 20x1.