Lessee enters into a three year lease of equipment and agrees to make the following annual payments at the end ofeach year 10,000 in year one, 12,000 in year two and 14,000 in year three. Discount rate is approx. 4, 235% and right ofuse asset is depreciated on a straight line basis over the lease term. What is the value of the lease liability at the end ofyears 2 & 3?

The objective of the question is to calculate the value of the lease liability at the end of years 2…

Answered: Lessee enters into a three year lease…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Each of the four independent situations below describes a finance lease in which annual lease payments are pay- able at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. Situation Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: Estimated fair value Guaranteed fair value 1 4 10% $50,000 $50,000 0 2 7 11% $350,000 $350,000 $ 50,000 0 3 5 9% $75,000 $45,000 $7,000 $7,000 Required: For each situation, determine: a. The amount of the annual lease payments as calculated by the lessor. b. The amount the lessee would record as a right-of-use asset and a lease liability. 4 8 12% $465,000 $465,000 10 $ 45,000 $ 50,000
On 1 March 2020,the company entered into a lease agreement in order to lease a manufacturing machine with a costprice of R250 000 (VAT inclusive). The period of the lease is five years, and the useful life of the machinery is estimatedat six years. The following is an extract from the lease agreement:4.1.1 Ownership of the machinery will be transferred to the Lessee at the end of the lease.4.1.2 Should the Lessee cancel the lease, the Lessor’s losses will be borne by the Lessee.Monthly instalments are payable in arrears and amount to R5 947 (VAT inclusive). The company used themanufacturing machine for a qualifying purpose. The company is a registered VAT vendor.Required:Provide the deferred tax movement per the balance sheet method for the lease agreement for the financial year ending31 December 2021. Clearly indicate whether the movement represents an income or an expense. Note:- Show all calculations, marks are awarded for calculations.- You may round off to the nearest Rand.
At the beginning of the year, Cazenovia, Inc. Entered into a five-year lease for equipment that was valued at $95,000. The company will be required to make annual lease payments of $22,000 for five years at year-end. The implicit interest rate is 5% and the company classified the lease as a finance lease. Required What is the balance sheet value of the lease asset and the lease liability? Why was the lease categorized as a finance lease? How much is interest expense in the first year? What is the reduction in the lease liability in the first year? What is the total expense if straight-line amortization is used for the leased asset?
S Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 10%. d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest…
A lease agreement calls for annual payments of $56,979 over a 6-year period (also the asset's useful life). The lease is signed January 1, 20X1 with the first payment due on that date. The interest rate is 8%, and the PV of lease payments is $284,480. The lessor manufactured the asset at a cost of $270,000. 24. In year 20X1, the lease decreases the lessee's net income by 25. In year 20X1, the lease increases the lessor's net income by,
Under leases
A finance lease agreement calls for quarterly lease payments of $5,376 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $150,000. Required: Prepare a partial amortization table up to the October 1 payment. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1?
Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $1,500 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years. Lease Cash Effective Decrease in Outstanding Payment Payment Interest Balance Balance 40,860 31,960 24,978 17,577 9,731 ?? 0 1 2 3 4 5 6 8,900 8,900 8,900 8,900 8,900 1,500 Multiple Choice $46,000 ?? 1,918 1,499 1,055 What is the total interest paid over the term of the lease? $2.760 ?? 85 ?? 6,982 7,401 7,845 ?? 1,415
A property is currently leased for $100,000 p.a. with fully recoverable outgoings. The lease has 3 years to run on the current (fixed) rent. The market rent for the property is $120,000. What is the current value of the property subject to the lease at a yield of 8% ? Assume rents are paid annually in arrears.
Dream Company leased equipment for its nine-year economic life, agreeing to pay P500,000 at the start of the lease on December 31, 2019 and P500,000 annually on each December 31 for the next eight years. The present value on December 31, 2019 of the nine lease payments over the lease term using the rate implicit in the lease which Dream knows to be 10% was P3,165,000. The December 31, 2019 present value of the lease payments using Dream's incremental borrowing rate of 12% was P2,985,000. Dream made a timely second lease payment. What amount should Dream report as finance liability in its December 31, 2020 statement of financial position? 2,431,500 None 3,500,000 2,283,000
A bhaliya
On January 1, 20x1, Lessee enters into a 4-year lease of heavy machinery. Annual rental is P200,000 payable at the beginning of each year. Lessee does not know the lessor's implict interest rate. Lessee's incremental borrowing rate is 14% Lessee incurs initial direct costs of P50,000 in negotiating the lease. The underlying asset's remaining useful life is 10 years Lessee uses the straight line method of depreciation. Requirements: a.) Prepare the amortization table for the lease liability. b.) Provide the journal entries on the following dates: January 1, 20x1, December 31, 20x1 and January 1, 20x2. c.) Compute for the carrying amounts of the right-of-use asset and lease liability on December 31, 20x1.

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS