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

See similar textbooks

Similar questions

On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of $100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is $2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswell’s incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of $7,000 annually,…
Sunland Company specializes in leasing large storage units to other businesses. Sunland entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $13,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $3,481 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $13,000, Sunland’s implicit rate of return on the lease of 9%. The following is a correct, complete amortization schedule created by Sunland. Date Lease Payment Interest (9%) onOutstanding Lease Receivable Reduction ofLease Receivable Balance ofLease Receivable 1/1/20 $13,000 1/1/20 $3,481 $3,481 9,519 1/1/21 3,481 $857 2,624 6,895 1/1/22 3,481 621 2,860 4,035 1/1/23…
Manji
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed? Group of answer choices 27.95% 14.72% 6.85% 12.23%
At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $22,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Crescent at a cost of $189,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. Crescent records depreciation using the straight-line method. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. (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.) Required: 1. What will be the effects of the lease on Crescent's earnings for the first year (ignore taxes)? (Enter decreases with negative numbers.) 2. What will be the balances in the balance sheet accounts related to the lease…
Crane Leasing Company leases a new machine to Cullumber Corporation. The machine has a cost of $65,000 and fair value of $85,500. Under the 3-year, non-cancelable contract, Cullumber will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2025. Crane expects to earn an 8% return on its investment, and this implicit rate is known by Cullumber. The annual rentals are payable on each December 31, beginning December 31, 2025. Click here to view factor tables. (b) (c) Prepare the journal entry at commencement of the lease for Crane. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Part B) Prepare the journal entry at commencement of the lease for Sharrer. ( Credit account titles are automatically indented…
Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract stipulates a lease term of 5 years, with equal annual rental payments of $8,880 at the end 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 a specialized nature. The asset has a fair value of $48,000, a book value of $43,000, and a useful life of 8 years. At the end of the lease term, Blossom expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Assuming Blossom wants to earn a 5% return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January 1, 2025. (List all debit entries before credit entries. Credit account titles are automatically
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 $118,000. The cost of the equipment to Elton is $113,000 and 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 $14,500 lease payments is probable.What is the principal balance in the Net Investment in Lease — Sale Type account after the second payment on December 31, 2023? Group of answer choices $83,902 $98,402 $113,000 $73,597
At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $24,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Crescent at a cost of $162,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $52,070.) Crescent seeks a 12% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)? (Enter decreases with negative sign.) 2. What will be…
AC Milan Sales and Service entered into a lease agreement to lease a fleet of six vehicles from FC Inter Motors. The term of the lease is five years and AC Milan makes annual payments of $30,000 per year beginning on 1 January 2019 (and then every 31 December through 31 December 2022). 1 January 2019 is also the lease commencement date. AC Milan does not guarantee any residual value in the lease agreement. AC Milan received $8,000 on 1 Jan 2019 as an incentive to sign the lease agreement and incurred initial direct costs in 2018 of $4,000 related to the lease that were recorded as prepaid assets. The estimated economic life of the vehicles is eight years and their fair value at lease commencement is $200,000. AC Milan is unaware of FC Inter's implicit rate, but AC Milan's incremental borrowing rate is 4% per year. There is no transfer of ownership at the end of the lease, nor is there a purchase option. The vehicles are not of a specialized nature. 1. What type of lease has AC Milan…
On January 1, 2019, Intouch Corp. signed a five-year non-cancelable lease for machine with UWMA Company. The terms of the lease called for Intouch to make annual payments of P86,680 at the beginning of each year starting January 1, 2019. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of five-year lease term. Intouch uses straight-line method of depreciation for all of its fixed assets. The implicit rate of the contract which is known by Intouch is 10%. The fair value of the machine on January 1, 2019 is P392,490. Intouch incurred P10,000 to install the machine. Intouch has an obligation to restore the machine to a condition suitable for use at the end of the lease term. Estimated cost of restoration is P20,000. (Use four decimal places for the PV factor) Applying IFRS 16, how much is the current and the non-current portion of the liability to be presented…
At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $28,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Crescent at a cost of $207,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $69,847.) Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. (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.) Required:1. What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)? (Enter decreases with negative sign.)2. What will be…

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