On 31 December 20X1, Lessee Ltd. entered into a lease agreement by which Lessee leased a jutling machine for six years. Annual leasepayments are $20,000, payable at the beginning of each lease year (31 December). At the end of the lease, possession of the machinewill revert to the lessor. The normal economic life for this type of machine is 8 to 10 years.At the time of the lease agreement, jutling machines could be purchased for approximately $90,000 cash. Equivalent financing for themachine could have been obtained from Lessee's bank at 14%.Lessee uses straight-line depreciation for its jutling machines.Required:1. Prepare a lease liability amortization table for the lease.2. Prepare all journal entries relating to the lease and the leased asset for 20X1, 20X2, and 20X3.3. How would the amounts relating to the leased asset and lease liability be shown on Lessee's statement of financial position at 31December 20X4?

Lease refers to the contract by which one part rents out an asset for a desired period of time and…

Answered: ne lease agreement, jutling machi: ave…

Business

Accounting

ne lease agreement, jutling machi: ave been obtained from Lessee's ght-line depreciation for its jutlim

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Each of the four independent situations below describes a sales-type lease in which annual lease…

A: Lease is defined a contractual agreement incorporated between two business entities or any other…

Q: A machine is leased and the Present value of the minimum lease payments amounts to the fair value of…

A: A. In the Balance Sheet as a fixed asset only:This option doesn't account for the liability to the…

Q: Want to the answer

A: Step 1: Definition of Lease:A lease can be explained as a contract between two parties in which one…

Q: Briefly describe the conceptual basis for asset and liability recognition under the right-of-use…

A: lessee is the tenant or the person who holds the property or asset under lease. Right of use means…

Q: The lease of land and building when split causes difficulty in the allocation of the lease payments.…

A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period…

Q: Describe the effect of a “bargain-purchase option” onaccounting for a capital lease transaction by a…

Q: The following are some of the characteristics of an asset available for lease. E (Click the icon to…

A: (Note: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: An investment property is defined as property held to earn rentals or for capital appreciation or…

A: A real estate asset purchased with the goal of producing capital appreciation, rental income, or…

Q: The lessee recognizes a loss on finance lease when the fair value of the leased asset is _______…

A: Solution: When at the end of lease term, fair value of leased asset is lesser than the guaranteed…

Q: uestion: True or False

A: Step 1 In lease accounting, in any model adopted by the lesser or lessee for its accounting of…

Q: For a(n) ________ lease, a lessor recognizes revenue on the sale and records the asset, ________…

A: The question is asking to identify the type of lease where a lessor recognizes revenue on the sale,…

Q: Which of the following statements is true? OA. The right-of-use asset is increased by prepaid lease…

A: A lease is the type of source of finance where one party (lessor) allow another party to use the…

Q: Which of the following statements is true? Group of answer choices The right-of-use asset is…

A: The objective of the question is to identify the correct statement about the calculation of the…

Q: If the residual value of a leased asset is guaranteed by a third party:

A: A lease is an arrangement under which a lessor agrees to allow a lessee to control the use of…

Q: a sale-leaseback transaction, the right-of-use asset is computed as: a. Rights retained by the…

A: Leaseback refers to the concept when an asset sold by an entity is leased back from the buyer.

Q: After a sale-leaseback, The buyer-lessor record depreciation expense on the leased asset. the…

A: After a sale-leaseback transaction, the seller-lessee will not record depreciation expense on the…

Q: ( How does a lessee record initial direct costs for an operating lease? (1 O They are expensed when…

A: An operating lease is a type of lease agreement wherein the lessee (the user) gains the right to use…

Q: Under IFRS: lessees may use alternative measurement bases (e.g., revaluation accounting) for the…

A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of…

Q: lessee

A: Lease is a financial arrangement where the right to use the asset is given by the owner to another…

Q: What are the guidelines for determining when a material amount of land is involved in a lease?

Q: If there is a reasonable certainly that lessee will obtain ownership by the end of the lease term,…

A: Useful life of the asset or lease term, whichever is shorter

Q: In a sale and leaseback transaction resulting to an operating lease, any gain or loss is recognized…

A: In a sale and leaseback transaction resulting to an operating lease any gain or loss on sale is…

Q: accounting processes necessary for a lessee to use the operating lease technique.

A: Operating lease refers to the lease or contract which allows the asset use and it does not convey…

Q: Referring to the Accounting standard AASB16, explain how a right-of-use asset measured at lease…

A: Lease Liability Recognized at Present Value of Lease installments or Lease Rentals Will be…

Q: On the balance sheet, the right-of-use asset under an operating lease is ________. Group of answer…

A: The question is asking about the treatment of the right-of-use asset under an operating lease on the…

Q: When a lease modification results in partial termination of a lease, the change shall be accounted…

A: Answer is option D) The increase (decrease) in lease liability as a result of the lease modification…

Q: Identify the two exceptions to valuing property, plant, and equipment and intangible assets acquired…

Q: A sale and leaseback arrangement does which one of the following? Select one: O a. allows the lessor…

A: Sale and leaseback transactions: under this transaction the lessor sold the goods to the lessee and…

Q: If the fair value of the consideration for the sale of an asset does not equal the fair value of the…

A: If the fair value of the consideration for the sale of an asset does not equal the fair value of the…

Q: If the lessor has a substitution right throughout the period of use of the leased asset, which of…

A: A substantive substitution right exists if the lessor has the practical ability to substitute…

Q: Which of the following is not correct statement for accounting by the lessee? O a. The lessee…

A: The incorrect Statement for accounting by lessee is "The operating lease method is used to account…

Q: The following are some of the characteristics of an asset available for lease. (Click the icon to…

A: Leasing an asset involves financial considerations for both the lessor (the owner of the asset) and…

Q: iability multiplied by useful life divided by total fair value of the asset. FV of rights retained…

A: Leaseback refers to the form of arrangement that sold an asset and also has an option to lease it…

Q: Explain how the general classification criteria are applied to leases that involve land.

A: Financial Accounting Standards Board (FASB): FASB is an independent 7-member board, of accounting…

Q: hen a lease transfers ownership to the lessee by the end of the lease term, the underlying asset is…

A: Solution: As per IAS 17, "If there is no reasonable certainty that the lessee will obtain ownership…

Q: Select one: ес

A: Step 1 A lease agreement is a contract that allows for the use of an asset without the transfer of…

Q: Describe about the EFFECT OF A RESIDUAL VALUE ON LEASE CLASSIFICATION?

A: Introduction Residual value is the amount, the asset's owner earns after selling/disposing that…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

On 31 December 20X1, Lessee Ltd. entered into a lease agreement by which Lessee leased a jutling machine for six years. Annual lease
payments are $20,000, payable at the beginning of each lease year (31 December). At the end of the lease, possession of the machine
will revert to the lessor. The normal economic life for this type of machine is 8 to 10 years.
At the time of the lease agreement, jutling machines could be purchased for approximately $90,000 cash. Equivalent financing for the
machine could have been obtained from Lessee's bank at 14%.
Lessee uses straight-line depreciation for its jutling machines.
Required:
1. Prepare a lease liability amortization table for the lease.
2. Prepare all journal entries relating to the lease and the leased asset for 20X1, 20X2, and 20X3.
3. How would the amounts relating to the leased asset and lease liability be shown on Lessee's statement of financial position at 31
December 20X4?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

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.

Similar questions

If an entity as lessee presents as investment property a property interest held under an operating lease then the entity 1has the option of measuring some items of investment property using the cost model. 2shall measure in the financial statement all of its investment property using the fair value models 3shall measure that leased property interest under the fair value model and the remaining investment property using the cost model. 4shall measure that leased property interest under the cost model and the remaining investment property either using the cost model or the fair value model.
Need help with this question
In calculating the amortization of a leased asset, the lessee should subtract a Select one: a. guaranteed residual value and amortize over the term of the lease. b. unguaranteed residual value and amortize over the term of the lease. c. guaranteed residual value and amortize over the life of the asset. d. unguaranteed residual value and amortize over the life of the asset. e. None of the above.
Provide correct answer for this question
10
Discuss the effectiveness of SFAS No. 13 in addressing the lease capitalizationproblem.
For a lessor, the leased asset appears on the balance sheet and continues to be depreciatedwhen the lease is classifi ed as:A . a sales-type lease.B . an operating lease.C . a fi nancing lease.
In a sale and leaseback transaction, what is used by the buyer-lessor to depreciate the cost of the leased asset? Remaining useful life Lease term Excess of useful life over the lease term Total Useful life
determine the initial recognition, initial measurement, and subsequent measurement offi nance leases;
1. Statement I. When the bargain purchase option was not exercised, the lessee should record a loss equivalent to the excess of the cost of the leased asset over the option price.Statement II. If there is a reasonable certainty that the lessee will obtain ownership by the end of the lease term, the leased asset should be depreciated the shorter between the lease term and the asset’s remaining useful life.Statement III. Assuming the lessee depreciates the asset under the straight-line method, the pattern of the total expense that the lessee shall recognized with respect to the lease is the same every period. A. Only Statement I and II are incorrect. B. Only Statement II and III are incorrect. C. Only Statement I and III are incorrect. D. All statements are incorrect. E. All statements are correct. 2. Statement I. If the pattern of the repairs cannot be established and the obligation for warranty cannot be reasonably estimated, warranty costs are recorded as expense when…
Which of the following statements is/are not true? Interest expense on the lease liability will increase the carrying amount of the liability. A lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date, using the lessee's incremental borrowing rate. Right-of-use asset cost will include an estimates cost to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. Group of answer choices Only statement 2. All statements are true. Only statements 2 and 3. None of the statements are true.
Which of the following is /are usually correct regarding operating leases? I. The lessor will recoup the entire cost of the leased asset during the term of the original lease. II. The leases are fully amortized. III. The lessee has an obligation under the cancellation option to cancel the lease contract prior to the expiration date. IV. The lessor is responsible for insuring the leased asset. Select one: a. I and III only b. II, III, and IV only c. III and IV only d. IV only