Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying. On September 30, 2024, the company leased a delivery truck to a local florist, Anything Grows. • The fiscal year for both companies ends December 31. • The lease agreement specified quarterly payments of $3,350 beginning September 30, 2024, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term). • The florist had the option to purchase the truck on September 29, 2026, for $6,700 when it was expected to have a residual value of $11,050. • The estimated useful life of the truck is four years. Mid-South Auto Leasing's quarterly interest rate for determining payments was 2% (approximately 8% annually). Mid-South paid $27,940 for the truck. • Both companies use straight-line depreciation or amortization. Anything Grows' incremental interest rate is 8%. Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO). 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. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.)
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying. On September 30, 2024, the company leased a delivery truck to a local florist, Anything Grows. • The fiscal year for both companies ends December 31. • The lease agreement specified quarterly payments of $3,350 beginning September 30, 2024, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term). • The florist had the option to purchase the truck on September 29, 2026, for $6,700 when it was expected to have a residual value of $11,050. • The estimated useful life of the truck is four years. Mid-South Auto Leasing's quarterly interest rate for determining payments was 2% (approximately 8% annually). Mid-South paid $27,940 for the truck. • Both companies use straight-line depreciation or amortization. Anything Grows' incremental interest rate is 8%. Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO). 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. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A-1
![Problem 15-9 (Algo) Sales-type lease; purchase option reasonably certain to be exercised before lease
term ends; lessor and lessee [LO15-3, 15-6]
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices
due to volume buying. On September 30, 2024, the company leased a delivery truck to a local florist, Anything Grows.
• The fiscal year for both companies ends December 31.
• The lease agreement specified quarterly payments of $3,350 beginning September 30, 2024, the beginning of the lease, and
each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term).
• The florist had the option to purchase the truck on September 29, 2026, for $6,700 when it was expected to have a residual
value of $11,050.
• The estimated useful life of the truck is four years.
Mid-South Auto Leasing's quarterly interest rate for determining payments was 2% (approximately 8% annually). Mid-South paid
$27,940 for the truck.
• Both companies use straight-line depreciation or amortization.
• Anything Grows' incremental interest rate is 8%.
Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO).
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. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although
payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments
represent an annuity due.)
2. Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2024.
3. Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid-
South Auto Leasing over the lease term.
4. Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2024.
5. Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2026, assuming the purchase option was
exercised on that date.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Required 3 Required 4 Required 5
Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that,
although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease,
payments represent an annuity due.)
Note: Round your intermediate and final answers to nearest whole dollar.
Selling profit
< Required 1
Required 2 >
Show less A](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fabdd5434-7351-4eb0-b1bd-693a0d7431e6%2Fbb618a01-7bdb-4bc5-b79a-fcdfea5aa839%2F575xpc8_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 15-9 (Algo) Sales-type lease; purchase option reasonably certain to be exercised before lease
term ends; lessor and lessee [LO15-3, 15-6]
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices
due to volume buying. On September 30, 2024, the company leased a delivery truck to a local florist, Anything Grows.
• The fiscal year for both companies ends December 31.
• The lease agreement specified quarterly payments of $3,350 beginning September 30, 2024, the beginning of the lease, and
each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term).
• The florist had the option to purchase the truck on September 29, 2026, for $6,700 when it was expected to have a residual
value of $11,050.
• The estimated useful life of the truck is four years.
Mid-South Auto Leasing's quarterly interest rate for determining payments was 2% (approximately 8% annually). Mid-South paid
$27,940 for the truck.
• Both companies use straight-line depreciation or amortization.
• Anything Grows' incremental interest rate is 8%.
Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i.e., a BPO).
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. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although
payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments
represent an annuity due.)
2. Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2024.
3. Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid-
South Auto Leasing over the lease term.
4. Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2024.
5. Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2026, assuming the purchase option was
exercised on that date.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Required 3 Required 4 Required 5
Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that,
although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease,
payments represent an annuity due.)
Note: Round your intermediate and final answers to nearest whole dollar.
Selling profit
< Required 1
Required 2 >
Show less A
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
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,
Accounting
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