N corp. entered into a nine year capital lease on a warehouse on December 31,2013 N Corp. entered into a nine-year capital lease on a warehouse onDecember 31, 2013. Lease payments of $34,000, which includesreal estate taxes of $1,500, are due annually, beginning onDecember 31, 2014, and every December 31 thereafter. N Corp.does not know the interest rate implicit in the lease; N'sincremental borrowing rate is 11%. The rounded present value ofan ordinary annuity for nine years at 11% is 6.What amount should N report as capitalized lease liability atDecember 31, 2013?a. $204,000.b. $292,500.C. $195,000.d. $306,000.

Step 1: Define Capital leaseA capital lease is not a typical type of lease where the lease payments…

Answered: N Corp. entered into a nine-year…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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Neal Corp. entered into a nine-year capital lease on a warehouse on December 31, 2016. Lease payments of $52,000, which includes real estate taxes of $2,000, are due annually, beginning on December 31, 2017, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for nine years at 9% is 6.0. What amount should Neal report as capitalized lease liability at December 31, 2016? a. $300,000 b. $312,000 c. $450,000 d. $468,000
On January 1, 2020, Dan Co. entered into a ten-year noncancelable lease lease requiring year-end payments of P 1,000,000. Dan's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Dan, is 10%. PV factors for an ordinary annuity for ten periods are 6.145 at 10%, and 5.650 at 12%. On the same date, Dan Co. paid initial direct cost of P 200,000 in negotiating and securing the leasing arrangement. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should be recognized initially as lease liability?
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On January 1, 2020 , Athena Company entered into a ten-year noncancelable lease requiring year-end payments of P 1,000,000. Athena's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Athena, is 10%. Present Value factors for an ordinary annuity for ten periods are 6.145 at 10% and 5.650 at 12%. On the same date, Athena Co. paid initial direct cost of P 200,000 in negotiating and securing the lease arrangement. Ownership of the property remains with the lessor at expiration of the lease. There is no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount should be capitalized initially as cost of the leased property?
Lessee Company enters into a lease on January 1, 2024, that is accounted for as a finance lease. The lease calls for quarterly payments of $20,000, beginning on January 1, 2024, and continuing for 5 years. The last payment is due on October 1, 2028. The lease has an implicit annual interest rate of 10%. The present value of an annuity due at 10% per period for 5 periods is 4.170; the present value of an annuity due at 2.50% per period for 20 periods is 15.979. What amount will Lessee report as a lease payable (not including accrued interest) in its balance sheet on December 31, 2024? Multiple Choice $416,987 $261,102 $319,580 $247,630 $416,987
On December 31, 2021, a company signed a seven-year finance lease for airplane. The airplane’s fair value wasP8,415,000. The entity made the first annual lease payments of P1,530,000 on the same date. The entity’sincremental borrowing rate was 12% and the interest rate implicit in the lease, which was known by the companywas 9%. The rounded present value factors for an annuity due are 5.1 and 5.5, respectively.Required:a. Lease liability to be reported on December 31, 2021b. Interest expense to be reported in 2022.
Company Inc. enters into a 10-year finance lease at the beginning of 2021 for a total of $250,000. The annual lease payment is $25,000 (payable at the end of each year) and the rate implicit in the lease is 5%. No initial direct costs are incurred. How much interest expense should be recognized in 2021?
On June 30, 2024, Clark, Incorporated leased warehouse equipment from Woodward, Incorporated. The lease agreement calls for Clark to make semiannual lease payments of $700,000 over a 2-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Clark's incremental borrowing rate is 10%, the same rate Woodward used to calculate lease payment amounts. Woodward manufactured the equipment at a cost of $2,220,000. Lease date Semi-annual payments Lease term Payments per year Equipment's cost Clark's incremental borrowing rate 1. Determine the price at which Woodward is 'selling' the equipment (present value of the lease payments) using Excel's PV function. 2. Prepare the journal entry to record the sale by Woodward Incorporated on June 30, 2024. Date General Journal Debit June 30, 2024 3. Prepare an amortization schedule for the 2-year term of the lease. Date June 30, 2024 December 31, 2024 June 30, 2025 December 31, 2025…
Lessee Company enters into a lease on January 1, 20X2 that is accounted for as a capital lease. The lease calls for quarterly payments of $15,000, beginning on January 1, 20X2, and continuing for 5 years. The last payment is due on October 1, 20X6. The lease has an implicit annual interest rate of 8%. The present value of an annuity due: -At 8% per period for 5 periods is 4.312. -At 2% per period for 20 periods is 16.678. What amount will Lessee report as a lease obligation on its financial statements dated December 31, 20X2? A. $203,657 B. $200,000 C. $208,968 D. $198,720 On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2016 balance sheet, the…
Blossom Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Blossom. The six-year lease requires payment of $180000 at the beginning of each year, including $26000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessor's implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Blossom should record the leased asset at $880137. O $723169. $753006. O $845262.
On January 1, 2021, ABC Company enters into a 4-year lease of a machinery. Annual rental is P200,000 payable at the beginning of each year. ABC does not know the lessor's implicit interest rate. ABC'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. Required: 1. Prepare the journal entries for 01/01/2021, 12/31/2021, and 01/01/2022. 2. Compute the carrying amounts of the right of use asset and lease liability on December 31, 2021.
On January 2, 2021, Cullumber Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $172000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $174500 residual value of the asset at the end of the lease term. The expected value of the residual value is $62500. Brick’s incremental borrowing rate is 9%, however it knows that Cullumber’s implicit interest rate is 7%. What journal entry would Brick Co. make at January 2, 2021 to record the lease?

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