Newhart Advertising signs a 10-year lease for a building owned by High-Rise Properties, Inc. that is appropriately classified as an operating lease by both the lessee and lessor. Lease payments are $350,000 on January 1 each year, with the first payment due on January 1, Year 1. The building has a fair value of $ 6,000,000 at the commencement of the lease, an estimated useful life of 30 years, and no residual value. High-Rise uses straight-line depreciation. The interest rate implicit in the lease is 6%. What amount would High-Rise Properties record for annual depreciation expense on December 31, Year 1? Select one: a. $ 600,000 b. $234, 051 c. $91, 020 d. $200, 000 e. $0

Newhart Advertising signs a 10-year lease for a building owned by High-Rise Properties, Inc. that is appropriately classified as an operating lease by both the lessee and lessor. Lease payments are $350,000 on January 1 each year, with the first payment due on January 1, Year 1. The building has a fair value of $ 6,000,000 at the commencement of the lease, an estimated useful life of 30 years, and no residual value. High-Rise uses straight-line depreciation. The interest rate implicit in the lease is 6%. What amount would High-Rise Properties record for annual depreciation expense on December 31, Year 1? Select one: a. $ 600,000 b. $234, 051 c. $91, 020 d. $200, 000 e. $0

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

Flint Company leased equipment to Land Company for a ﬁve-year period. Flint paid $9,393 for the equipment, which equals its current carrying value (with estimated useful life of ﬁve years). The lease commenced on January 1 of Year 1. Flint uses a target rate of return of 8% in all lease contracts. The ﬁrst payment was received on January 1 of Year 1, and Flint’s accounting periods end on December 31. The lease contract contains a purchase option stating that Land Company can purchase the equipment for $800 on January 1 of Year 6, at which time its residual value is estimated to be $1,300. It is reasonably certain that Land Company will exercise the purchase option at the end of the lease term. a. Compute the annual payment calculated by the lessor.
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $ 60,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 5%. Winn also paid a $276,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $336,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $72,000 each, beginning December 31, 2021, and at each December 31 through 2023. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 8%. Winn also paid a $231,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $303,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. (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:Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2023. Winn’s fiscal year is the calendar year. (If no entry is required for a transaction/event, select…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $96,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 5%. Winn also paid a $321,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $417,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
Glaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2020, is $700,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Jensen estimates that the expected residual value at the end of the lease term will be $50,000. Jensen amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Glaus desires a 5% rate of return on its investments. Jensen's incremental borrowing rate is 6%, and the lessor's implicit rate is unknown. Instructions (Assume the accounting period ends on…
Wells Leasing Company signs an agreement on January 1. 2020, to lease equipment to Manchester Company. The following information relates to this agreement. The term of the non-cancellable lease is 6 years with no renewal option. 1. The equipment has an estimated economic life of 6 years. The cost of the asset to the lessor is S250,000. The fair value of the asset at January 1, 2020, is $250,000. The asset will revert to the lessor at the end of the lease term, at which 3. time the asset is expected to have a residual value of $25000, none of which is guaranteed. The agreement requires equal annual rental payments, beginning on 4. January 1, 2020. 5. Collectability of the lease payments by Windsor is probable. A. Assuming the lessor desires a 6o rate of return on its investment, calculate the amount of the annual rental payment required.
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. The lease agreement specified annual payments of $34,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. The company had the option to purchase the machine on December 30, 2026, for $43,000 when its fair value was expected to be $58,000, a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 12 %. 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 Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Complete this…
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…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $60,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 8%. Winn also paid a $120,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2022, Lenore Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Lenore to make annual payments of $10,000 at the beginning of each year, starting January 1, 2022. Lenore correctly accounts for the lease as a finance lease. The machine has an estimated useful life of 6 years and a $5,000 guaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Lenore uses the straight-line method of depreciation for all of its plant assets. Lenore’s incremental borrowing rate is 8% and the Lessor’s implicit rate is known to be 6%. Required: Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be at least $5,000. Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be $3,000.
Skysong Dairy leases its milking equipment from Concord Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $32,500 due at the beginning of each year starting January 1, 2020. 2. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $244,649 and a cost of $267,000 on Concord Finance’s books. It also has an estimated economic life of 15 years and an expected residual value of $15,300, though Skysong Dairy has guaranteed a residual value of $19,700 to Concord Finance. 3. The lease contains no renewal options, and the equipment reverts to Concord Finance upon termination of the lease. The equipment is not of a specialized use. 4. Skysong Dairy’s incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Skysong Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable. A)…
King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. The asset being leased cost Mann $230,000 to produce. Required:1. Determine the price at which the lessor is “selling” the asset (present value of the lease payments).2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?