Ivanhoe Manufacturing Ltd. has signed a lease agreement with Oriole Leasing Inc. to lease some specialized manufacturingequipment. The terms of the lease are as follows:The lease is for 5 years commencing January 1, 2023.Ivanhoe must pay Oriole $54,114 on January 1 of each year, beginning in 2023.Equipment of this type normally has an economic life of 6 years.Oriole has concluded, based on its review of Ivanhoe's financial statements, that there is no unusual credit risk in thissituation. Oriole will not incur any further costs with regard to this lease.Oriole purchases this equipment directly from the manufacturer at a cost of $202,026, and normally sells the equipment for$251,626.Ivanhoe's borrowing rate is 7% Oriole's implied interest rate is 6%, which is known to Ivanhoe at the time of negotiating thelease.Ivanhoe uses the straight-line method to depreciate similar equipment.Both Ivanhoe and Oriole have calendar fiscal years (year end December 31), and follow ASPE.Click here to view the factor table PRESENT VALUE OF 1.Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.(a)Your answer is correct.From Ivanhoe Manufacturing's perspective, is this a capital or operating lease?Ivanhoe will classify this as a(n) capital leaseeTextbook and MediaList of Accounts(c)Your Answer Correct Answer (Used)Prepare a lease amortization schedule for this lease. (Round answers to O decimal places, e.g. 5,275.)(d)PaymentInterestPrincipal$54,114$$D54,11454,11454,11411.25142,8638.67945,43554,1145,95354.1143.06348,16151,053270,57028,946$241,626Attempts: 1 of 3 usedBalanceYour answer is partially correct.Prepare the journal entries on Ivanhoe Manufacturing's books on January 1, 2023. (List all debit entries before credit entries. Creditaccount titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" forthe account titles and enter O for the amounts.)Date Account Titles and ExplanationJan.1,Lease Receivable2023Sales Revenue(To record inception of lease)CashLease Receivable(To record lease payment)Debit5411454114Credit5411454114

Lease is a financial arrangement in which lessor provides a right of use of asset to the lessee. In…

Answered: Ivanhoe Manufacturing Ltd. has signed a…

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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On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $468,683 over a five-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's Incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Incorporated at a cost of $3.8 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. What amount related to the lease would IC report in its balance sheet on December 31, 2024 (Ignore taxes)? 2. What amount related to the lease would IC report in its income statement for the year ended December 31, 2024 (Ignore taxes)? Note: For all requirements, enter your answers in whole dollars and not in millions. Round the…
On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $403,067 over a five-year lease term, payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 8%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value of the equipment is $3.40 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the present value of the lease payments on June 30, 2024 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What amount related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2024 (ignore taxes)? 3. What amount related to the lease would…
On January 1, 2024, Gravel Incorporated leased construction equipment from Rocky Mountain Leasing. Rocky Mountain Leasing purchased the equipment from Bishop Incorporated at a cost of $2,069,621. Gravel's borrowing rate for similar transactions is 10%. The lease agreement specified four annual payments of $432,000 beginning January 1, 2024, the beginning of the lease, and at each December 31 thereafter through 2026. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 10% is $1,506,319. On January 1, 2026 (after two years and three payments), Gravel and Rocky Mountain agreed to extend the lease term by two years. The market rate of interest at that time was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the appropriate journal entries for Gravel Incorporated on January 1, 2026, to adjust its lease liability for the…
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. . The lease agreement specified annual payments of $34,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. . The company had the option to purchase the machine on December 30, 2026, for $43,000 when its fair value was expected to be $58,000, a sufficient difference that exercise seems reasonably certain. . The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 12%. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease llability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare…
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 8-year period (the useful life of the asset) expiring June 30, 2023. The first of 8 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 6% (the appropriate interest rate) was $4,000,000. 43. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of depreciation and interest expense that Sands should record for the year ended December 31, 2015? a. $400,000 and $206,880 b. $250,000 and $103,440 c. $250,000 and $206,880 d. $240,000 and $103,440 44. What is the amount of profit on the sale and the…
Gordon Inc., a private company that follows ASPE, entered into a lease agreement with Canada Leasing Corporation to lease a warehouse for six years. Annual lease payments are $21,000, payable at the beginning of each lease year. Gordon Inc. signed the lease agreement on January 1, 2021, and made the first payment on that date. At the end of the lease, the machine will revert back to Canada Leasing Corporation. The normal useful life of the warehouse is 10 years. At the time of the lease, the warehouse could be purchased for $108,000. Gordon does not know the implicit rate of the lease; Gordon's incremental borrowing rate is 10%. Gordon uses straight-line depreciation for this type of asset. Required: Using the three criteria under ASPE, prove whether this is an operating or capital lease. Prepare a lease amortization schedule for the lease. Round all amounts to the nearest dollar. Prepare the journal entries for 2021 and 2022 for Gordon Inc. Round amounts to the nearest…
Riverbed Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $53,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Riverbed’s incremental borrowing rate is 9%. Riverbed is unaware of the rate being used by the lessor. At the end of the lease, Riverbed has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Riverbed uses the straight-line method of depreciation on similar owned equipment. A)Prepare the journal entries, that Riverbed should record on December 31, 2020.
Metlock Company leases a building and land. The lease term is 8 years and the annual fixed payments are $840,000. The lease arrangement gives Metlock the right to purchase the building and land for $13,550,000 at the end of the lease. Based on an economic analysis of the lease at the commencement date, Metlock is reasonably certain that the fair value of the leased assets at the end of lease term will be much higher than $13,550,000. What are the total lease payments in this lease arrangement? Total lease payments Click if you would like to Show Work for this question: Open Show Work
Leewin Brokerage enters into a lease agreement with Bumble Motors to lease an automobile with a fair value of $78,000 under a 5-year lease on December 20, 2022. The lease commences on January 1, 2023, and Leewin will return the automobile to Bumble on December 31, 2027. The automobile has an estimated useful life of 7 years. Leewin made a lease payment of $10,700 on December 20, 2022. In addition, the lease agreement stipulates annual payments of $10,700, due on January 1 of 2023, 2024, 2025, 2026, and 2027. The implicit rate of the lease is 4% and is known by Leewin. There is no purchase option, no lease incentives, no residual value guarantees, and no transfer of ownership. Leewin incurs initial direct costs of $2000.Assuming that this is classified as an operating lease, how much interest expense is recorded in 2023? Group of answer choices $1554 $2140 $0 $1982
Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $17 million. This noncancelable lease had the following terms: Lease payments: $2,691,724 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. Lease term: 5 years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 6% semiannually. Fair value of the computers on January 1, 2024: $21 million. What is the interest revenue that Technoid would report for this lease in its income statement for the year ended December 31, 2024? Note: Round your answer to the nearest whole dollar.Multiple Choice $0 $2,101,400 $1,098,497 None of these answer choices is correct.
sunland corporation, which uses ASPE, enters into a 6 year lease of equipment on september 1, 2023, that requires 6 annual payments of $30,000 each, beginning september 1, 2023. In addition, sunland gaurantees the lessor a residual value of $19,000 at lease end. the equipment has a useful life of seven years. Using tables, a financial calculator, or excel functions, calculate the amount of the capital lease and prepare Sunlands september 1, 2023 journal entry assuming an interest rate of 8%.
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