Jelly Co. processes jam and sells it to the public. Jelly leases equipment used in its production processes from Squishy, Inc. This year, Jelly leases a new piece of equipment from Squishy. The lease term is 5 years and requires equal rental payments of $15,000 at the beginning of each year. In addition, there is a renewal option to allow Jelly to keep the equipment one extra year for a payment at the end of the fifth year of $10,000 (which Jelly is reasonably certain it will exercise). The equipment has a fair value at the commencement of the lease of $76,024 and an estimated useful life of 7 years. Squishy set the annual rental to earn a rate of return of 5%, and this fact is known to Jelly. The lease does not transfer title, does not contain a bargain purchase option, and the equipment is not of a specialized nature. Which of the 5 lease tests does the lease qualify as a finance lease for? Choose all

Jelly Co. processes jam and sells it to the public. Jelly leases equipment used in its production processes from Squishy, Inc. This year, Jelly leases a new piece of equipment from Squishy. The lease term is 5 years and requires equal rental payments of $15,000 at the beginning of each year. In addition, there is a renewal option to allow Jelly to keep the equipment one extra year for a payment at the end of the fifth year of $10,000 (which Jelly is reasonably certain it will exercise). The equipment has a fair value at the commencement of the lease of $76,024 and an estimated useful life of 7 years. Squishy set the annual rental to earn a rate of return of 5%, and this fact is known to Jelly. The lease does not transfer title, does not contain a bargain purchase option, and the equipment is not of a specialized nature. Which of the 5 lease tests does the lease qualify as a finance lease for? Choose all

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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On January 1, 2018, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semi-annually. Prepare the appropriate entries for both the lessee and the lessor from the beginning of the lease through the end of 2018. Only typing answer Please explain step by step
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Telephone Limited signed a contract with Machinery Leasing Company at 1st January 2020 to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the beginning of each year with an interest rate of 15%. The yearly rental payment includes $30,000 of executory costs related to insurance on the machine. The executory costs of $30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company is 31 of December. Required(Round all numbers to the nearest dollar) a) Discuss the nature of this lease to Telephone Limited. b) Discuss the nature of this lease to Machinery Leasing Company. c)…
On January 1, 2020, Irwin Animation sold a truck to Peete Finance for $35,000 and immediately leased it back. The truck was carried on Irwin's books at $28,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Irwin at lease-end. The lease requires three equal rental payments of $8,696 at the end of each year (first payment on January 1, 2021). The appropriate rate of interest is 6%, the truck has a useful life of 5 years, and the residual value at the end of the lease term is expected to be $14,000, none of which is guaranteed. Prepare Irwin's 2020 journal entries.
On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. 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 appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the…
Sheridan Limited, a public company following IFRS 16, decided to upgrade the coffee machines in all of its office locations. Sheridan leased 53 machines from Coffee Tyme Ltd. on July 1, 2020. (To purchase the coffee machines instead would have cost Sheridan $371 per machine, and the machines would have lasted an estimated five years.) The lease calls for semi-annual payments for the next three years, in the amount of $36 per machine. The payments start on July 1, 2020. At the end of the three-year period, the machines will have to be returned to the lessor. Prepare the entry for the first payment on July 1, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation July 1 Debit Credit Would your entry for the first payment differ if Sheridan followed ASPE? The entry would be the same under ASPE.
On January 1, 2023, Precision Pumps leases nonspecialized pumping equipment to Mega Construction. The equipment is delivered on January 1. The lease term is 4 years with no renewal or purchase options, and title to the leased asset is retained by the lessor at the end of the lease term. The lease requires annual fixed rental payments of $8500 per year beginning on January 1, 2023, and then December 31 of each year starting on December 31, 2023. The fair value of the equipment is $40,430 and has a carrying amount on Precision's books of $27,492. The equipment has a remaining life of 8 years. The estimated residual value of the equipment is $14,700. The lessee does not guarantee the residual value, but Precision secured an unrelated third party to guarantee $14,700; collection of this guaranteed residual value and lease payments are reasonably certain. The rate implicit in the lease is 9%. There are no prepaid rentals, and neither party to the agreement pays initial direct costs.What is…
On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. • The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with no residual value. • Both firms record amortization and depreciation semiannually. 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 appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers…
Wildhorse Limited, a public company following IFRS, decided to upgrade the coffee machines in all of its office locations. Wildhorse leased 45 machines from Coffee Tyme Ltd. on July 1, 2023. (To purchase the coffee machines instead would have cost Wildhorse $315 per machine, and the machines would have lasted an estimated five years.) The lease calls for semi-annual payments for the next three years, in the amount of $30 per machine. The payments start on July 1, 2023. At the end of the three-year period, the machines will have to be returned to the lessor. Prepare the entry for the first payment on July 1, 2023. (List debit entry before credit entry. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit July 1 Would the entry for the first payment differ if Wildhorse followed ASPE? The entry ☑…
On January 1, James Industries leased equipment to a customer for a six-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $760,000 and has an expected useful life of eight years. Its normal sales price is $760,000. The residual value after six years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 8%. Calculate the amount of the annual lease payments. Chart to Use: Table or calculator function: Amount to be recovered (fair value) Present value of the residual value Table or calculator function: S Amount to recovered through periodic lease payments Lease Payment Amount of each annual lease payment. Residual Value n= i= n= i= Present value Lease Payments
Teal Mountain Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $38,000, and Teal Mountain expects the machinery to have a residual value at the end of the lease term of $27,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $36,000 instead of $27,000. What would be the amount of the annual rental payments Teal Mountain demands of Thiensville, assuming each payment will be made at the end of each year and Teal Mountain wishes to earn a rate of return on the lease of 5%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.) Click here to view factor tables. Amount of equal annual lease payments %24
On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually.Required:Prepare the appropriate entries for both (a) the lessee and (b) the lessor from the beginning of the lease through the end of 2021.

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