Gemini Oil Company owns a 100% working interest in a lease on which there is a 1/8royalty interest. During one month, Gemini Oil produced and sold 3,000 MCF of gas at$4.50/mmbtu to Tawhoe Gas Plant. Based on gas analysis the btu factor is 1.039. Assumeproduction taxes are 5%.A). Calculate the revenue distribution (Gross revenue, severance tax and net of severancetax) for working interest and royalty owners.B). Prepare the journal entry assuming the Gemini Oil Compnay is responsible fordistributing royalty and production taxes.C). Prepare the journal entry assuming Tawhoe Gas Plant is responsible for distributingroyalty and severance tax.80F3000000F4F5士$4%do L5>6MacBook AirF6&277F7ERTYU,FLLGH* 8DIIDDF8F9(9KO0

Let's break down the problem step by step:A) Revenue Distribution: 1.Gross Revenue: Gross Revenue =…

Answered: Gemini Oil Company owns a 100% working…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Schrute Company leases an automobile with a fair value of $15,005 from Rainn, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $300 per month (at the beginning of each month). 3. Schrute guarantees a residual value of $1,800 (the present value at 0.5% per month is $1,403). The expected residual value is estimated to be $1,800 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Schrute’s incremental borrowing rate is 6% a year (0.5% a month). Rainn’s implicit rate is unknown. Present Value of an Annuity Due with 0.5% and 60 periods: 51.98419 Present Value of an Ordinary Annuity at 0.5% and 60 periods: 48.17337352 Present Value of an Annuity Due with 0.5% and 50 periods: 44.36350 Present Value of an Ordinary Annuity with 0.5% and 50 Periods:41.56644707 The entry to record the first month’s lease payment (at commencement of the lease) would include: a) a debit to interest expense in the amount of $300.…
On January 1, Lessee Company leases equipment with a useful life of 5 years for a 6-year lease term. Payments of $88,000 are due at the beginning of each year. The incremental borrowing rate is 4%. The present value of the payments is $407,440. Which of the following is true? Interest expense at the end of the first year is $407,440 x .04 Amortization expense at the end of the first year is $407,440 divided by 6. Lease expense at the end of the first year is $88,000. Interest expense at the end of the first year is $319,440 x .04
Splish Brothers Company leases an automobile with a fair value of $13,924 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $280 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.) 3. Splish Brothers guarantees a residual value of $1,580 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,580 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Splish Brothers’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the nature of this lease to Splish Brothers? The nature of this lease is a/an select a nature of the lease…
On 1/1/21, Sargento leased equipment under a two-year operating lease agreement from Great American Leasing, which typically finances equipment for other companies at an annual interest rate of 4%. The lease documentation calls for four rent payments of $15,500 each, payable semiannually on June 30 and December 31 each year. The equipment was acquired by Great Amerian Leasing at a cost of $101,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Required:1. Prepare appropriate journal entries recorded by Great American Leasing for the first year of the lease.
Splish Brothers Company leases an automobile with a fair value of $13,924 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months.2. Rental of $280 per month (at the beginning of each month). (The present value at 0.5% per month is $8,873.)3. Splish Brothers guarantees a residual value of $1,580 (the present value at 0.5% per month is $920). Delaney expects the probable residual value to be $1,580 at the end of the lease term.4. Estimated economic life of the automobile is 60 months.5. Splish Brothers’s incremental borrowing rate is 6% a year (0.5% a month). Simon’s implicit rate is unknown. Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Collapse question part(a) What is the nature of this lease to Splish Brothers? The nature of this lease is a/an select a nature of the leasefinancelease. Collapse question part(b) What is the present value of the lease payments to determine…
Big Bucks leased equipment to Shannon Company on July 1, 2021. The lease payments were calculated to provide the lessor a 9% return. Ten annual lease payments of $39,000 are due each July 1, beginning July 1, 2021. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries to record the lease by Shannon at July 1, 2021, and at December 31, 2021, the end of the reporting period. Consider this to be a finance lease. 2. Prepare the journal entries to record the lease by Shannon at July 1, 2021, and at December 31, 2021, the end of the reporting period. Consider this to be an operating lease. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entries to record the lease by Shannon at July 1, 2021, and at December 31, 2021, the end of the reporting period. Consider this to be an operating lease. (If no entry is required for a…
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Judgo Corporation is attempting to determine whether it should lease or purchase equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: I Lease there will be annual end-of-year lease payments of $25,200 each year over the 3-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will be able to exercise its option to purchase the asset for $5,000 at termination of the lease. I Purchase The equipment which costs $60,000 can be financed completely with a 14% loan that requires annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-year recovery period. (33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the…
An asset costs $420,000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The lessor can borrow at 7 percent, and the lessee can borrow at 10 percent. The corporate tax rate is 34 percent for both companies. Assume the lease payments are made at the end of each year. (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.) a. This part of the question is not part of your Connect assignment. b. What lease payment amount will make the lessee and the lessor equally well off? Lease payments $ c. Assume that the lessee pays no taxes and the lessor is in the 34 percent tax bracket. For what range of lease payments does the lease have a positive NPV for both parties? Range more than $ Tibut less than $
Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace earns interest under these arrangements at a 6% annual rate. Ace leased a machine it purchased for $600,000 under an arrangement that specified annual payments beginning at the commencement of the lease for five years. The lessee had the option to purchase the machine at the end of the lease term for $100,000 when it was expected to have a residual value of $160,000. Calculate the amount of the annual lease payments.

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