On December 31, 20x0 an entity sells one of its assets to a leasing company and immediately leases it back. Fair value of asset $750,000 Asset's original cost Accumulated depreciation $1,500,000 1,100,000 8 years 8 years Lease term Economic (and useful) life of asset Residual value Interest rate implicit in the lease (known to the lessee) Lessee's incremental borrowing rate 6% 6% At the end of the lease term, the asset's ownership reverts back to the lessee. The first lease payment of $113,941 is due on December 31, 20x0. Required – For each of the following, prepare the journal entries relative to this lease transaction at December 31, 20x0 and December 31, 20x1. (a) (b) The lessee is subject to IFRS The lessee is subject to ASPE.

On December 31, 20x0 an entity sells one of its assets to a leasing company and immediately leases it back. Fair value of asset $750,000 Asset's original cost Accumulated depreciation $1,500,000 1,100,000 8 years 8 years Lease term Economic (and useful) life of asset Residual value Interest rate implicit in the lease (known to the lessee) Lessee's incremental borrowing rate 6% 6% At the end of the lease term, the asset's ownership reverts back to the lessee. The first lease payment of $113,941 is due on December 31, 20x0. Required – For each of the following, prepare the journal entries relative to this lease transaction at December 31, 20x0 and December 31, 20x1. (a) (b) The lessee is subject to IFRS The lessee is subject to ASPE.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 13E: Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with...

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Case 1: ABC leases an asset from XYZ, a lease financier, with the following terms: Lease term - 5 years Annual rental - 200,000 Residual Value - 30,000 Initial direct cost - 50,000 Executory cost - 2,000 The asset leased by ABC is economically useful for 8 years, however, the ownership will transfer to the lessee by the end of the lease term. The residual value was guaranteed by a party related to ABC. The initial direct cost was shouldered by ABC to secure the contract of lease as well as the executory cost which will be settled every end of each year. The first rental payment will be made at the end of the year the lease commenced (January 1, 2021). During that year the interest rate implicit to the lease is 10%. ABC has made an outright payment of P40,000 to XYZ for closing the lease contract with the company. Additionally, an improvement is built into the leased property which amounted to P100,000. It is estimated to be useful for 4 years. At XYZ’s perspective, the total amount of…
c) The information below relates to a leasing arrangement between Frankfield Leasing Company and Boswell Manufacturing Company, a lessee. Inception date Lease term (non cancellable) January 1, 2020 5 years Annual lease payment due at the beginning of each $28,500 year beginning January 1, 2020 Fair value of asset at January 1, 2020 Economic life of leased equipment $130,000 6 years Residual value of equipment at end of lease $25,270 term, unguaranteed by the lessee Lessor's implicit rate (not known by the lessee) 6% Lessee's incremental borrowing rate 8% The asset will revert to the lessor at the end of the lease term. There is an expected residual value of $25,270 which is unguaranteed by the lessee. The lessee uses the straight-line depreciation method for all equipment. (Round all figures to the nearest $1.)
Problem 6. Sales and Leaseback On Januar y 1 20х1, Entity sold building to Entity and a simultaneously leased it back. Additional information follows : Fair value of building 1,000,000 Carrying amount of building 800,000 Remaining useful life of building 10 years Lease Term 5 years Annual rent payable at the end of each year 100,000 Implicit interest rate equal to market rate 12% The transfer qualifies as a sale. Requirements (Independent cases) : а. If the sales price is P1,000,000 which is equal to fair value compute t he following under the seller-lessee accounting i. Lease liability ii. Right of use Asset iii. Gain or Loss iv. Journal entries on January 1, 20x1 b. If the sales price is P1,000,000 which is equal to fair value compute the following under the buyer-lessor acco unting i. Gross Investment ii. Net Investment iii. Unearned Interest Income iv. Journal entries on January 1, 20x1 c. Same requirements in a and b but the sales price is P1,100,000 which is above the fair value…
6. Entity X sells a building to Entity Y and simultaneously leases Sale and leaseback 6. Entity X sells a building to Entity Y and simultaneously it back. Relevant information follows: P2,000,00 Cash selling price of building Fair,value of building Carrying amount of building Annual rent payable at the end of each year 1,800,00 1,000,00 120,000 18 years Lease term 4.5% Implicit interest rate (readily determinable to Entity X) The terms and conditions of the transaction are such that the transfer of the building qualifies as a sale under PFRS 15. Requirements: Prepare the journal entries in the books of Entity X (seller-lessee) and Entity Y (buyer-lessor) on lease commencement. (Adapted - IFRS 16. IE11)
The following facts pertain to a non-cancelable lease agreement between Wildhorse Leasing Company and Windsor Company, a lessee. Commencement date June 1, 2025 Annual lease payment beginning with June 1, 2025 $19,998.50 Bargain purchase option price at end of lease term $7,000.00 Lease term Economic life of leased equipment (no salvage value) Lessor's cost Fair value of asset at June 1, 2025 4 years 12 years $56,000 $78,999 Lessor's implicit rate (known to lessee) 6% Lessee's incremental borrowing rate 69 The collectibility of the lease payments by Wildhorse is probable. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) (b) (c) Your answer is partially correct. Prepare a lease amortization schedule for Windsor for the 4-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.) WINDSOR COMPANY (Lessee) Date 6/1/25 $ 6/1/25 6/1/26 6/1/27 6/1/28 5/31/29 Annual Lease Payment Plus BPO $ Lease…
SLIGHTLY USED MEMORY leased a machine with an estimated useful life of 20 years from another company. The 10-year non-cancellable lease provides that the title to the machine transfers to SLIGHTLY USED MEMORY at the end of the lease term. The leased asset should be depreciated by SLIGHTLY USED MEMORY over a. 10 years b. 20 years c. 10 years or 20 years depending if the lessee classifies it as either operating or finance lease d. 10 years or 20 years depending if the lessor classifies it as either operating or finance lease
John Limited leses an asset from Smith Limited. The lease agreement has the following terms: lease term is 3 years estimated economic life of the leased asset is 6 years 3 x annual rental payments of $24 000 each payment is one year in arrears İncluded in the amount of annual rental payments is an amount of $1 000 to cover repairs and maintenance of the leased asset residual value at the end of the lease term is not guaranteed by the lessee John Ltd incurs initial direct costs of $500 interest rate implicit in the lease is 7% At the commencement of the lease, the amount of lease liability would be measured as: Group of answer choices $60 359. $62 983 $60 859 $64 584
of-use asset for P986,986 plus P93,301 loss d. Sunset Co. should ignore the modification Reconstruction of information 15. The noncurrent liabilities section of Calm Co.'s statement of financial position as of December 31, 20x1 reported a lease liability of P1,066,986, net of current portion. Lease payments of P200,000 are due every January 1st of the year. incremental borrowing rate is 11% and the lessor's implicit rate, which is known to Calm Co., is 10%. What amount of lease liability, net of current portion, should Calm Co. report Calm Co.'s on December 31, 20x2? a. 871,052 b. 973,685 c. 986,986 d. 1,066,986
PROBLEM NO. 3– Lessor and Lessee (Lessor, Direct Financing Lease)Assimilator Corp. is in the business of leasing equipment. Assimilator purchased new equipment on Dec. 31, 2022. The equipment was delivered the same day (by prior arrangement) to Tantalum Corp., a lessee. The following information relating to the lease is available:Cost of equipment to Assimilator P550,000Estimated useful life and lease term 8 yearsExpected residual value (unguaranteed) P40,000Interest rate implicit in the lease 12%Tantalum’s incremental borrowing rate 14%Date of first lease payment Dec. 31, 2022Annual lease payments P95,950Additional information is as follows:(a) At the end of the lease, the equipment will revert to Assimilator.(b) Tantalum is aware of the rate implicit in the lease.(c) The lease rental consists of equal annual payments.(Round off present…
PROBLEM NO. 3– Lessor and Lessee (Lessor, Direct Financing Lease)Assimilator Corp. is in the business of leasing equipment. Assimilator purchased new equipment on Dec. 31, 2022. The equipment was delivered the same day (by prior arrangement) to Tantalum Corp., a lessee. The following information relating to the lease is available:Cost of equipment to Assimilator P550,000Estimated useful life and lease term 8 yearsExpected residual value (unguaranteed) P40,000Interest rate implicit in the lease 12%Tantalum’s incremental borrowing rate 14%Date of first lease payment Dec. 31, 2022Annual lease payments P95,950Additional information is as follows:(a) At the end of the lease, the equipment will revert to Assimilator.(b) Tantalum is aware of the rate implicit in the lease.(c) The lease rental consists of equal annual payments.(Round off present…
b) The information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning ofeach year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term,guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions (i) What is the lease liability for Telsan Company? (ii) Record the lease on Telsan Company’s books at the date of inception. (iii)Record the first year’s depreciation on Telsan Company’s books. (iv) Record interest expense and lease liability for Telsan…
2. Gramwell International Ltd leased equipment from Lubsal Financial Group Ltd. The details are as follows: Start of Lease April 1, 2021 Lease term (non cancellable) 5 years Annual lease payment due at the end of each year beginning April 1, 2021 $142,500 Fair value of asset at April 1, 2021 $650,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term, unguaranteed by the lessee $126,350 Lessee’s incremental borrowing rate 8% The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment. (Round all figures to the nearest $1.) i) Calculate the lease liability for Gramwell International Ltd. ii) Prepare the journal entries for Gramwell International Ltd at the start of the lease on April 1, 2021. iii) Prepare the lease journal entries for Gramwell International Ltd for the year ended December 31, 2021. iv) Prepare the…