he ZiccoCompany (lessor) and the AlbertoCompany (lessee) signeda lease agreement on January 1, 2020, calling for theZicco Company to lease foodrestaurant equipment to Alberto Companybeginning January 1, 2020. The relevant information is as follows: (i)The lease term is five years. The lease is noncancelable and requiresequalpayments of Tshs 14,990,810at the beginning of each year. (ii)The equipment has a fair value and cost Tshs50,million, estimated ife of fiveyears and a zero residual vaue. (iii)The Aberto Company agreed to pay the executory costs of Tshs 3millionper year, which are included in the annual payments to the ZiccoCompany. (iv)There is no renewal option or purchase option, with the equipment revertingto the ZiccoCompany. (v)The Alberto Company’s incremental borrowing rate is 11% per year, theZicco’s implicit lease rate is 10% and is known to the Alberto Company. Required: Account for the lease contract in the books of Zicco and Alberto company
he ZiccoCompany (lessor) and the AlbertoCompany (lessee) signeda lease agreement on January 1, 2020, calling for theZicco Company to lease foodrestaurant equipment to Alberto Companybeginning January 1, 2020. The relevant information is as follows: (i)The lease term is five years. The lease is noncancelable and requiresequalpayments of Tshs 14,990,810at the beginning of each year. (ii)The equipment has a fair value and cost Tshs50,million, estimated ife of fiveyears and a zero residual vaue. (iii)The Aberto Company agreed to pay the executory costs of Tshs 3millionper year, which are included in the annual payments to the ZiccoCompany. (iv)There is no renewal option or purchase option, with the equipment revertingto the ZiccoCompany. (v)The Alberto Company’s incremental borrowing rate is 11% per year, theZicco’s implicit lease rate is 10% and is known to the Alberto Company. Required: Account for the lease contract in the books of Zicco and Alberto company
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
The ZiccoCompany (lessor) and the AlbertoCompany (lessee) signeda lease agreement on
January 1, 2020, calling for theZicco Company to lease foodrestaurant equipment to Alberto
Companybeginning January 1, 2020. The relevant information is as follows:
(i)The lease term is five years. The lease is noncancelable and requiresequalpayments
of Tshs 14,990,810at the beginning of each year.
(ii)The equipment has a fair value and cost Tshs50,million, estimated ife of fiveyears
and a zero residual vaue.
(iii)The Aberto Company agreed to pay the executory costs of Tshs 3millionper year,
which are included in the annual payments to the ZiccoCompany.
(iv)There is no renewal option or purchase option, with the equipment revertingto the
ZiccoCompany.
(v)The Alberto Company’s incremental borrowing rate is 11% per year, theZicco’s implicit
lease rate is 10% and is known to the Alberto Company.
Required:
Account for the lease contract in the books of Zicco and Alberto company
Transcribed Image Text:The Zicco Company (lessor) and the Alberto Company (lessee) signed a lease agreement on
January 1, 2020, calling for the Zicco Company to lease food restaurant equipment to Alberto
Company beginning January 1, 2020. The relevant information is as follows:
(1)
(ii)
(iii)
(iv)
(v)
The lease term is five years. The lease is noncancellable and requires equal payments
of Tshs 14,990,810 at the beginning of each year.
The equipment has a fair value and cost Tshs 50, million, estimated life of five years
and a zero residual value.
The Alberto Company agreed to pay the executory costs of Tshs 3 million per year,
which are included in the annual payments to the Zicco Company.
There is no renewal option or purchase option, with the equipment reverting to the
Zicco Company.
The Alberto Company's incremental borrowing rate is 11% per year, the Zicco's implicit
lease rate is 10% and is known to the Alberto Company.
Required:
Account for the lease contract in the books of Zicco and Alberto company
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