solve for all red boxes, show work Wildhorse Company leases a building to Windsor, Inc. on January 1, 2020. The following facts pertain to the lease agreement.1.The lease term is 6 years, with equal annual rental payments of $3,933 at the beginning of each year.Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of aspecialized nature.2.3.The building has a fair value of $22,000, a book value to Wildhorse of $15,000, and a useful life of 7 years.4.At the end of the lease term, Wildhorse and Windsor expect there to be an unguaranteed residual value of $3,750.Wildhorse wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Windsor was unaware ofthe implicit rate used in the lease by Wildhorse and has an incremental borrowing rate of 9%.5.Click here to view factor tables.How would Wildhorse (lessor) and Windsor (lessee) classify this lease?Wildhorse would classify the lease as aoperatinglease.Windsor would classify the lease as afinanceV lease.How would Wildhorse initially measure the lease receivable, and how would Windsor initially measure the lease liability and right-of-use asset? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places,e.g. 5,275.)WildhorseLease receivable$22219Present value of lease pay2$19562WindsorLease Liability/Right-of-Use Asset2$19240

lease term is 6 years, with equal annual rental payments of $3,933 at the beginning of each year. hership does not transfer at the end of the lease term, there is no bargain purchase option, and th ialized nature. building has a fair value of $22,000, a book value to Wildhorse of $15,000, and a useful life of 7 y he end of the lease term, Wildhorse and Windsor expect there to be an unguaranteed residual val Ihorse wants to earn a return of 8% on the lease, and collectibility of the payments is probable. W mplicit rate used in the lease by Wildhorse and has an incremental borrowing rate of 9%.

lease term is 6 years, with equal annual rental payments of $3,933 at the beginning of each year. hership does not transfer at the end of the lease term, there is no bargain purchase option, and th ialized nature. building has a fair value of $22,000, a book value to Wildhorse of $15,000, and a useful life of 7 y he end of the lease term, Wildhorse and Windsor expect there to be an unguaranteed residual val Ihorse wants to earn a return of 8% on the lease, and collectibility of the payments is probable. W mplicit rate used in the lease by Wildhorse and has an incremental borrowing rate of 9%.

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 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...

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Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
Sandhill Company leases a building to Teal Mountain, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $3,539 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $17,800, a book value to Sandhill of $10,800, and a useful life of 6 years. At the end of the lease term, Sandhill and Teal Mountain expect there to be an unguaranteed residual value of $3,730. 4. 5. Sandhill wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Teal Mountain was unaware of the implicit rate used in the lease by Sandhill and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Sandhill (lessor) and Teal Mountain (lessee) classify this lease? Sandhill would classify the lease as a Teal Mountain…
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Sheridan Company leases a building to Skysong, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $ 5,857 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $ 29,000, a book value to Sheridan of $ 22,000, and a useful life of 6 years. 4. At the end of the lease term, Sheridan and Skysong expect there to be an unguaranteed residual value of $ 5,500. 5. Sheridan wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Skysong was unaware of the implicit rate used in the lease by Sheridan and has an incremental borrowing rate of 9%. Click here to view factor tables.How would Sheridan (lessor) and Skysong (lessee) classify this lease? Sheridan would classify the lease as a…
Oriole Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $3,937 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $19,500, a book value to Oriole of $12,500, and a useful life of 6 years. 4. At the end of the lease term, Oriole and Walsh expect there to be an unguaranteed residual value of $3,125. 5. Oriole wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. Click here to view factor tables.(b)Using the original facts of the lease, show the journal entries to be made by both Oriole and Walsh in 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final…
Oriole Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $3,937 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $19,500, a book value to Oriole of $12,500, and a useful life of 6 years. 4. At the end of the lease term, Oriole and Walsh expect there to be an unguaranteed residual value of $3,125. 5. Oriole wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. Click here to view factor tables.(b)Using the original facts of the lease, show the journal entries to be made by both Oriole and Walsh in 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final…
Phelps Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $4,703 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $23,000, a book value to Phelps of $16,000, and a useful life of 6 years. 4. At the end of the lease term, Phelps and Walsh expect there to be an unguaranteed residual value of $4,000. 5. Phelps wants to earn a return of 8% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. Instructions a. How would Phelps (lessor) and Walsh (lessee) classify this lease? How would Phelps initially measure the lease receivable, and how would Walsh initially measure the lease liability and right-of-use asset? b. Using the original facts of the lease, show the…
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On January 1, 2021, Blossom, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $6500000; however, the book value to Holt is $5450000.(c) The building has an estimated economic life of 10 years, with no residual value. Blossom depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Blossom’s incremental borrowing rate is 12% per year. Holt Warehouse Co. set the annual rental to insure a 11% rate of return. The implicit rate of the lessor is known by Blossom, Inc.(f) The yearly rental…