Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2021. Natick has the option to renew the leaseat the end of two years for an additional three years. Natick is subject to a $55,000 penalty after two years if it fails to renew the lease.Framingham Leasing purchased the equipment from Waltham Machines ata cost of $346,294. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Related Information:2 years (8 quarterly periods)3 years (12 quarterly periods)$19,000 at Jan. 1, 2021, and at Mar.5 yearsLease termLease renewal option for an additionalQuarterly lease paymentsEconomic life of assetInterest rate charged by the lessor31, June 30, Sept. 30, and Dec. 31 thereafter.

What is meant by lease contract? The contract in which two parties are involved one is the lessor…

Answered: Natick Industries leased high-tech…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Edom Company, the lessor, enters into lease with Davis Company to lease equipment to Davis beginning January 1, 2016. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year. 2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom. 3. Davis agrees to pay all executory costs. 4. The interest rate implicit in the lease is 14%. 5. The initial direct costs are insignificant and assumed to be zero. 6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. Required: 1. Next Level Determine if the lease is a sales-type or direct financing lease from Edom's point of view…
Morgan Leasing Company signs an agreement on January 1, 2025, to lease equipment to Cole Company. The following informationrelates to this agreement.The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6years.The cost of the asset to the lessor is $245,000. The fair value of the asset at January 1,2025 , is $245,000.The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of$24,335, none of which is guaranteed.The agreement requires equal annual rental payments, beginning on January 1, 2025.Collectibility of the lease payments by Morgan is probable.
Crane Corporation, which uses ASPE, leased equipment it had specifically purchased at a cost of $190,000 for Oriole, the lessee. The term of the lease is 15 years, beginning January 1, 2023, with equal rental payments of $28,255 at the beginning of each year. Oriole pays all executory costs directly to third parties. The equipment's fair value at the lease's inception is $190,000. The equipment has a useful life of 16 years with no residual value. The lease has an implicit interest rate of 15%, no bargain purchase option, and no transfer of title. Collectibility is reasonably assured, with no additional costs to be incurred by Crane. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Using (1) tables, (2) a financial calculator, or (3) Excel functions, calculate the PV of the lease payments and prepare Crane's January 1, 2023 journal entries at the inception of the lease. (List all debit entries before credit…
Sheridan Corporation, which uses ASPE, manufactures replicators. On May 29, 2020, it leased to Coronado Limited a replicator that cost $265,800 to manufacture and usually sells for $417,000. The lease agreement covers the replicator's 4-year useful life and requires four equal annual rentals of $107.924 each, beginning May 29, 2020. The equipment reverts to Sheridan at the end of the lease, at which time it is expected that the replicator will have a residual value of $42,100, which is not guaranteed by Coronado, the lessee. An interest rate of 8% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE Prepare Sheridan's May 29, 2020 journal entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is…
Jensen Corporation leased industrial equipment to Francis Manufacturing on January 1, 2019. The following facts pertain to the lease: The lease term is 4 years. The annual lease payment is due at the beginning of each year starting on January 1, 2019. Each annual lease payment is $269,282 Ownership does not transfer at the end of the lease term and there is no bargain purchase option. The asset is not of a specialized nature. The industrial equipment has a fair value of $1,000,000, a book value to Jensen Corporation of $900,000, and a useful life of 5 years. Francis Manufacturing depreciates similar equipment using the straight-line method. The lease contains a guaranteed residual value of $50,000. The expected residual value is greater than $50,000. Jensen Corporation wants to earn a return of 8% on the lease, and collectability of the payments is probable. This rate is known by Francis…
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Tamarisk Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $74,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $3,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $24,716 to the lessor, beginning on January 1, 2020. 5. The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee. 6. Tamarisk uses the straight-line depreciation method for all equipment. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Prepare an amortization schedule that would be…
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.
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 6%. The contract calls for four rent payments of $11,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $93,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. Record the beginning of the lease for Nath-Langstrom Services (January 1, 2021). Record the lease payment made by Nath-Langstrom Services (June 30, 2021). Record amortization for Nath-Langstrom Services (June 30, 2021). Record the lease payment made by Nath-Langstrom Services (December 31,…
Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized and is delivered on January 1, 2023. The fair value of the equipment is$123,000.The cost of the equipment to Elton is $118,000and the expected life of the testing equipment is 8 years. Elton incurs initial direct costs of $10,000, which they elect to expense. The lease term for the equipment is 8 years, with the first payment due upon delivery, and seven subsequent annual payments beginning on December 31, 2023 and ending on December 31, 2029. Elton's implicit rate is 5% and they expect that collection of the $15,000 lease payments is probable. How much interest will Elton record for 2023? The correct answer is $4,340 How was the answer $4,340 calculated?
Happy Company uses lease as a means of selling its equipment. On July 1, 2021, the company leased a piece of equipment to Great Company. The cost of the equipment to Happy Company was P684,000. The fair market value (which was the sales price) was P792,200 at the time of the inception of the lease. Annual lease payments are P135,000 and are payable in advance for 8 years. The equipment has an expected economic life of 10 years. At the end of the lease term, the title to the equipment will pass to Great Company. Implicit interest rate is 10%. What is the manufacturer’s profit recognized by Happy Company in 2021?
Pharoah Corporation, which uses ASPE, manufactures replicators. On May 29, 2023, it leased to Bonita Limited a replicator that cost $266,600 to manufacture and usually sells for $415,000. The lease agreement covers the replicator's 7-year useful life and requires 7 equal annual rentals of $77,545 each, beginning May 29, 2023. The equipment reverts to Pharoah at the end of the lease, at which time it is expected that the replicator will have a residual value of $41,200, which has been guaranteed by Bonita, the lessee. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Prepare Pharoah's May 29, 2023 journal entries. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not…
Crane Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $85,500. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has à 3-year useful life and no residual value. The lease was signed on January 1, 2020. Crane expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020. Click here to view factor tables. (b) Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (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.) Date /1/20 12/31/20 2/31/21 2/31/22 Rent Receipt/ Payment Interest Revenue/ Expense $ Reduction of Principal $ Receivable/Lia 1 SUPPORT

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