Ground Company leased a parcel of land to Sparks Company for six years. The lease agreement states that the Sparks will pay rental of P200,000 on the first year, to be increased by P10,000 annually. There is also a provision that Ground is to receive a lease bonus of P30,000 and a security deposit of P60,000, refundable at the end of the lease contract. How much is the rent expense of Sparks Company on the first year? How much is the rent income of Ground Company on the second year?

Ground Company leased a parcel of land to Sparks Company for six years. The lease agreement states that the Sparks will pay rental of P200,000 on the first year, to be increased by P10,000 annually. There is also a provision that Ground is to receive a lease bonus of P30,000 and a security deposit of P60,000, refundable at the end of the lease contract. How much is the rent expense of Sparks Company on the first year? How much is the rent income of Ground Company on the second year?

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

Related questions

Q: Blossom Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to…

A: 1.The lease asset refers to an item of property or equipment that a lessee (the party leasing the…

Q: Assume it is a direct finance lease with an implicit rate of 12% and the residual value is…

A: A finance lease, also known as a capital lease, is a type of lease arrangement in which the lessee…

Q: agreement, RS SHO ACorporation leased out is commercial space to RS pay a monthly rental of P150,000…

A: Solution : Correct answer is option a.150,000 Calculation of gross income of SM upon signing of the…

Q: On January 1, 2020, Nge Company leased a building to Lol Corp. for a ten-year term at an annual…

A: Current liabilities: Liabilities that have to be paid within one year or one operating cycle,…

Q: At the beginning of the year, Cazenovia, Inc. entered into a five-year lease for equipment that was…

A: Explanation: REQUIRED: What is the total expense if straight-line amortization is used for the…

Q: On January 1, 20x1, Entity X (Customer) enters into a 4-year lease of equipment with Entity Y…

A: 1) At the commencement of the lease all the lease liability initially measured at present value of…

Q: Ericson Company leased an asset to another entity. The cost of the asset was P7,994,000. Terms of…

A: PV of the asset = Annual rental * PVIFA(i,n) + Residual value * PVIF(i,n) - initial cost

Q: Boyce Company leased a music studio from Justine company on a 6-year lease term at P250,000 annual…

A: Annual lease payment=P250000Price at the end of 6 years=P200000Interest rate=12%Economic life=10…

Q: On June 1, 2018 ABC Company entered into a 5-year nonrenewable lease, commencing on that date, for…

A: Definition: Revenues: Revenues are earnings from operations of a business. The operating activities…

Q: At the beginning of the current year, CPA Co, leased a machine to CMA Co. The machine had an…

A: Finance Lease :— A lease is an agreement whereby the Lessor conveys to the Lessee in return for a…

Q: BenLin Co. is a lessee under finance lease. The asset is recorded at P4,500,000 and has economic…

Q: A six-year operating lease requires annual rent payments of $15,000 for years 1, 2, and 3, and…

A: Lets understand the basics. As per IFRS 16 "Leases", when there is operating lease then lessor…

Q: Ground Company leased a parcel of land to Sparks Company for six years. The lease agreement states…

A: An agreement between two parties one that provides the asset called the lessor and the one who…

Q: Ken Company leased an asset on January 1, 2020. The asset was accounted for as an operating lease…

A: An agreement of contract that is prepared to transfer the right to use the resources for a…

Q: Alcatel Company leased an asset to another company. The cost of the asset was P7,994,000. Terms of…

A: Financial lease recognizes the value of finance lease liability and ROU assets at the present value…

Q: The lease requires equal rental payments of $30,580 at the beginning of each year of the term. The…

A: The amount of sales revenue that will be recorded by the lessor will be the sum of fair value of the…

Q: On January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing…

A: The operating lease is a lease agreement where the lessee takes the assets on rent from the lessor…

Q: Timmer Company signs a lease agreement dated January 1, 2019,that provides for it to lease equipment…

A: Lease refers to the contractual agreement where user pay the owner for using the asset and the…

Q: On January 1, 2020 ABC Company leased a building to XYZ Company for a 10-year term at an annual…

A: Liabilities are the obligations of the company that are being owed to someone else such as current…

Q: Kit Company leased equipment at an annual rental of P45,000 payable in advance for five years.…

Q: On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year term at an…

A: GIVEN DATA On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year…

Q: If the lease is an operating lease, what will be the initial value of the right-of-use asset?

A: An operating lease is a type of lease, that allows the lessee to use the asset without buying it.…

Q: White Ltd leased a parcel of land for a period of 10 years. The lease payments required include a…

A: The right-of-use asset is initially recognized at the summation of the present value of lease…

Q: Lessee enters into a three year lease of equipment and agrees to make the following annual payments…

A: The objective of the question is to calculate the value of the lease liability at the end of years 2…

Q: Wilcox Ltd finance company purchases a machine for $160,000 at the request of Upland Manufacturing…

Q: The lessor company leases a building to the lessee company on 1/1/2021. The lessee will make ten…

A: Given, Annual Rental payment = 77,000 Residual Value = 17,000 Initial direct costs = 4,360

Q: On January 1, 2018, This Co. leased an asset with fair value of P800,000 from Joyce Co. for a lease…

A: Original Cost of Asset = Present Value of Annual Lease rentals discounted at Implicit interest rate…

Q: Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace…

A: Purchase option Purchase option is provision of certain lease contracts which provides the lessee…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Ground Company leased a parcel of land to Sparks Company for six years. The lease agreement states that the
Sparks will pay rental of P200,000 on the first year, to be increased by P10,000 annually. There is also a provision that Ground is to receive a lease bonus of P30,000 and a security deposit of P60,000, refundable at
the end of the lease contract.

How much is the rent expense of Sparks Company on the first year?
How much is the rent income of Ground Company on the second year?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define lease accounting

VIEW

Step 2: Calculation of rent expense

VIEW

Step 3: Calculation of rent income

VIEW

Solution

VIEW

Step by step

Solved in 4 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
Lessee enters into a three year lease of equipment and agrees to make the following annual payments at the end of each year 10,000 in year one, 12,000 in year two and 14,000 in year three. Discount rate is approx. 4, 235% and right of use asset is depreciated on a straight line basis over the lease term. What is the value of the lease liability at the end of years 2 & 3?
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? O $10,000 O $16,800 $13,500 O $15,000
Ken Company leased an asset on January 1, 2020. The asset was accounted for as an operating lease for five years. The rent for the first year is P100,000 and the contract stipulates that the rent shall increase by 10% for every year thereafter. The lease agreement also provides that a lease bonus shall be paid to Ken at the start of the lease. Ken reported an Unearned Rent Revenue of P10,796 and Rent Receivable of P5,306 on its Balance Sheet for 2021 and 2022, respectively. How much is the lease bonus? How much is the rental expense to be recorded in 2022? How much should be reported in the 2022 Balance Sheet? [Indicate whether it is an asset or liability]
Kit Company leased equipment at an annual rental of P45,000 payable in advance for five years. Under the lease contract, Kit is given the option to purchase the asset for P75,000 at the end of the lease term and Kit is reasonably certain to exercise this option. The appropriate interest rate is 12%. Present value of 1 at 12% for 5 periods is 0.5674. Present value of an annuity due of 1 at 12% for 5 periods is 4.0373. What is the capitalized cost of right of use equipment? a. 225,000 b. 300,000 c. 224,234 d. 189,679
SMCorporation leased out its commercial space to RS Per agreement, RS shall pay a monthly rental of P150,000 payable every 1* day of the month. Upon signing of the agreement, RS shall deposit an equivalent of 3-month rental to SMto settle any unpaid obligations of the lessee upon termination of the lease. In addition, RS shall also deposit an advance 2-month rental to be applied after the 1 month. The parties signed the agreement on May 1, 2021. Compute the gross income of SM upon signing of the agreement: O a. P150,000 O b. P450,000 O c. P900,000 d. Answer not given
On January 1, 2018, This Co. leased an asset with fair value of P800,000 from Joyce Co. for a lease term of 6 years. The lease specifies equal annual payments beginning on January 1, 2018. The lessee guarantees a P100,000 residual value of the asset at the end of the lease term. The rate implicit on the lease is 9%. How much is the annual lease payment?
On January 1, 2020 ABC Company leased a building to XYZ Company for a 10-year term at an annual rental of P500,000. At the inception of the lease, ABC received P2,000,000 covering the first two years' rent of P1,000,000 and a security deposit of P1,000,000. This deposit will not be returned to XYZ upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the P2,000,000 should be shown as current and noncurrent liability in ABC's December 31, 2020 statement of financial position? a. Current liability P0, Noncurrent liability P2,000,000 b. Current liability P500,000, Noncurrent liability P1,000,000 c. Current liability P1,000,000, Noncurrent liability P1,000,000 d. Current liability P1,000,000, Noncurrent liability P500,000
Blossom Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Blossom. The six-year lease requires payment of $180000 at the beginning of each year, including $26000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessor's implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Blossom should record the leased asset at $880137. O $723169. $753006. O $845262.
BenLin Co. is a lessee under finance lease. The asset is recorded at P4,500,000 and has economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of P1,500,000 at the end of 5 years and a fair value of P500,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense should be recorded for the first year of the lease?
White Ltd leased a parcel of land for a period of 10 years. The lease payments required include a payment up-front of $248531, followed by another 9 payments of equal value at the end of every year up to the end of the ninth year. The implicit rate in the lease is 7 percent. What is the value of the right-of-use asset at the commencement of the lease?
On January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. Lessee paid P60,000 lease bonus to obtain the lease and security deposit of P40,000 to be refunded upon expiration of the lease. How much is the total rent income in 2021?