Hayes Corp. is a manufacturer of truck trailers. On January 1, 2021, Hayes Corp. leases ten trailers to Lester Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided: Equal annual payments that are due on January 1 each year provide Hayes Corp. with an 8% return on net investment (present value factor for 6 periods at 8% is 4.99271). Titles to the trailers pass to Lester at the end of the lease. The fair value of each trailer is $60,000. The cost of each trailer to Hayes Corp. is $54,000. Each trailer has an expected useful life of nine years. Collectability of the lease payments is probable. Instructions(a) What type of lease is this for the lessor? Discuss.(b) Calculate the annual lease payment. (Round to nearest dollar.)(c) Prepare a lease amortization schedule for Hayes Corp. for the first three years.(d) Prepare the journal entries for the lessor for 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).

The question is based on the concept of Lease Accounting. As per the Bartleby guidelines we are…

Answered: Hayes Corp. is a manufacturer of truck…

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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Question

Hayes Corp. is a manufacturer of truck trailers. On January 1, 2021, Hayes Corp. leases ten trailers to Lester Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided:

Equal annual payments that are due on January 1 each year provide Hayes Corp. with an 8% return on net investment (present value factor for 6 periods at 8% is 4.99271).

Titles to the trailers pass to Lester at the end of the lease.

The fair value of each trailer is $60,000. The cost of each trailer to Hayes Corp. is $54,000. Each trailer has an expected useful life of nine years.

Collectability of the lease payments is probable.

Instructions

(a) What type of lease is this for the lessor? Discuss.

(b) Calculate the annual lease payment. (Round to nearest dollar.)

(d) Prepare the journal entries for the lessor for 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).

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