On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets. 3. Before the effects of lease, Lexington had $500,000 of current assets and $300,000 of current liabilities. How will the new lease change its current ratio at December 31, 20X1?

On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets. 3. Before the effects of lease, Lexington had $500,000 of current assets and $300,000 of current liabilities. How will the new lease change its current ratio at December 31, 20X1?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

See similar textbooks

Similar questions

On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets. How should Lexington account for the lease? Before the effects of lease, Lexington had $3,000,000 of total assets and $1,000,000 in total debt. How will the new lease change its debt-to-assets ratio at December 31, 20X1?
On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets. 4. Lexington estimates that 20X2 pre-tax income before the effects of new lease will be approximately $250,000. What would be Lexington’s pre-tax income for 20X2 after taking the effects of new lease into account?
On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets. 5. Lexington estimates that 20X2 operating cash flows (OCF) and financing cash flows (FCF) before the effects of new lease will be approximately $220,000 and $140,000, respectively. What would be Lexington’s OCF and FCF for 20X2 after taking the effects of new lease into account, respectively?
On December 31, 20X1, Lexington Corporation signed a noncancelable three-year lease for a machine whose fair value is $200,000. The lease calls for annual payments of $50,000 per year due at the end of each of the next three years. The leased machine’s expected economic life is six years. No cash changed hands because the first payment was not due until December 31, 20X2. Lexington’s incremental borrowing rate is 12%. Lexington follows US GAAP and use the straight-line depreciation method for its fixed assets. Before the effects of lease, Lexington had $500,000 of current assets and $300,000 of current liabilities. How will the new lease change its current ratio at December 31, 20X1? Lexington estimates that 20X2 pre-tax income before the effects of new lease will be approximately $250,000. What would be Lexington’s pre-tax income for 20X2 after taking the effects of new lease into account?
On January 1, 20x6, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for a piece of industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. Day knows that the lessor expects a 10% return on the lease. Day has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to Day, has guaranteed to pay Ward a residual value of P5,000 at the end of the lease. In Day's January 1, 20x6 balance sheet, the principal amount of the lease obligation was а. 63,374 b. 61,446 с. 58,112 d. 56,502
On 1 January 20X1, Dynamic entered into a three year lease for a lorry. Lease payments are $10,000 per year for the first two years and $15,000 for the third year. All payments are due at the end of the year. The present value of the lease payments was $31,552, and Dynamic incurred initial direct costs of $3,000. Dynamic's rate of borrowing is 5%. Prepare extracts from Dynamic's financial statements in respect of the lease agreement for the year ended 31 December 20X1.
On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was P63,374 P61,446 P58,112 P56,502 show properly labeled solution.
On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was A. P63,374 B. P61,446 C. P58,112 D. P56,502 Show properly labeled solution.
Please solve. ASAP. Thank you. On January 1, 20x1, Chirp Co. entered into a 4-year lease agreement with Birds, Inc. for a piece of industrial equipment. Lease payment is P100,000, payable annually starting on January 1, 20x1. Chirp Co. knows that the lessor expects a 10% return on the lease. Chirp Co. has a 12% incremental borrowing rate. The equipment has an estimated useful life of 5 years and a residual value of P25,000. The lease agreement contained a purchase option that is exercisable at the end of the lease term for P50,000. It is reasonably certain that ChirpO Co. will exercise the purchase option. Chirp Co. uses the straight line method of depreciation. Requirements: 1. Provide the journal entries on Jan. 1, 20x1, Dec. 31, 20x1 and 2. Jan. 1, 20x2. 2. Prepare Chirp Co.'s Dec. 31, 20x1 partial statement of financial position and partial statement of comprehensive income. Indicate current and noncurrent assets and liabilities.
On 1/1/24, Half Inc entered into a lease agreement with Holes Co. Half leased a machine from Holes for 9 years. The estimated useful life of the machine is 9 years. At the end of the 9 year lease term, ownership of the machine will transfer back to Holes. The lease agreement calls for annual payments of $150,000, to begin on 1/1/24 and continue every January 1. The borrowing rate is 10%. The present value of the lease payments is $949,500. Half's year end is 12/31. Show all computations. a. Prepare a lease amortization table for 1/1/24, 1/1/25 & 1/1/26. (3 years only) b. Prepare journal entries for Half (lessee finance lease) for 1/1/24, 12/31/24 & 1/1/25.
Pharoah Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Pharoah. The six-year lease requires payment of $162000 at the beginning of each year, including $24200 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Pharoah should record the leased asset at $660171. $808819. $776108. $687995.
The following information applies to Questions 15-19. On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 8 years; the economic life of the asset is 12 years. The cost of the equipment is $36,000; its fair value is $61,000. Lessor’s implicit rate is 7%; Lessee’s incremental borrowing rate is 7%. Lease payments of $9000 are due at the beginning of each year (PV $57,510). At the end of the lease term, the asset is expected to have a residual value of $6000 (PV $3492), none of which is guaranteed by Lessee. This is a finance lease for Lessee with a liability of $61,000. This is an operating lease for Lessee with a liability of $61,000. This is a finance lease for Lessee with a liability of $61,000 – the present value of the $6000. This is an operating lease for Lessee with a liability of $61,000 – the present value of the $6000.