On January 1, 2013, R Corporation leased equipment to Hela Company. The lease term is 9 years. The first payment of $452,000 was made on January 1, 2013. Remaining payments are made on December 31 each year, beginning with December 31, 2013. The equipment cost R Corporation $2,457,400. The present value of the minimum lease payments is $2,697,400. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 12%, what will be the balance reported as a liability by Hela in the December 31, 2014, balance sheet?

On January 1, 2013, R Corporation leased equipment to Hela Company. The lease term is 9 years. The first payment of $452,000 was made on January 1, 2013. Remaining payments are made on December 31 each year, beginning with December 31, 2013. The equipment cost R Corporation $2,457,400. The present value of the minimum lease payments is $2,697,400. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 12%, what will be the balance reported as a liability by Hela in the December 31, 2014, balance sheet?

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 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

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Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.
On January 1, 2013, R Corporation leased equipment to Hela Company. The lease term is 9 years. The first payment of $452,000 was made on January 1, 2013. Remaining payments are made on December 31 each year, beginning with December 31, 2013. The equipment cost R Corporation $2,457,400. The present value of the minimum lease payments is $2,697,400. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 12%, what will be the balance reported as a liability by Hela in the December 31, 2014, balance sheet?
Skor Co. leased equipment to Douglas Corp. on January 2, 2011, for an 8-year period expiring December 31, 2018. Equal payments under the lease are $600,000 and are due on January 2 of each year. The first payment was made on January 2, 2011. The cost of the equipment is $2,800,000. The lease is appropriately accounted for as a sales-type lease. The present value of the lease payments is $3,300,000. What amount of net profit on the sale should Skor report for the year ended December 31, 2011? a. $720,000 b. $500,000 c. $90,000 d. $600,000 e. $2,800,000
edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2013. The lease terms, provisions, and related events are as follows: 11 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,00 to be made in advance at the beginning of eacy year. 2. The equipment costs $313,000. the equipment has an estimatd life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom. 3. Davis agrees to pay all executory costs. 4. The interest rate implicit in the leae is 14%. 5. The intial direct costs are insignificant and assumed to be zero. 6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. Prepare journal entries for Edom for the years 2013 and 2014. Do not give answer in image formate
edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2013. The lease terms, provisions, and related events are as follows: 11 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,00 to be made in advance at the beginning of eacy year. 2. The equipment costs $313,000. the equipment has an estimatd life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom. 3. Davis agrees to pay all executory costs. 4. The interest rate implicit in the leae is 14%. 5. The intial direct costs are insignificant and assumed to be zero. 6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. Prepare journal entries for Edom for the years 2013 and 2014.
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease noncancelable and requires annual rental payments of $50,000 to be made at the end of each year. 2. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero 3. Fox agrees to pay all executory costs. 4. The interest rate implicit in the lease is 12%. 5. The initial direct costs are insignificant and assumed to be zero. 6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. Required: 1. Next Level Determine if the lease is a sales-type or direct financing lease from Berne's point of view (calculate the selling price and assume that this is also the fair value).…
On January 1, 2021, Packard Corporation leased equipment to Hewlitt Company. The lease term is 9 years. The first payment of $458,000 was made on January 1, 2021. Remaining payments are made on December 31 each year, beginning with December 31, 2021. The equipment cost Packard Corporation $2,705,847. The present value of the lease payments is $2,733,179. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 12%, what will be the balance reported as a liability by Hewlitt in the December 31, 2022, balance sheet? (Round your final answer to nearest dollar.) Multiple Choce $1,883,024. $2.275,179. $1,613,024. $2.090,200.
At the beginning of 2016, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a fouryear lease. The lease is payable in four annual payments of $2 million at the end of each year. Required: 1. What is the effective rate of interest implicit in the agreement? 2. Prepare the lessee’s journal entry at the inception of the lease. 3. Prepare the journal entry to record the first lease payment at December 31, 2016. 4. Prepare the journal entry to record the second lease payment at December 31, 2017. 5. Suppose the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 11%. Prepare the lessee’s entry at the inception of the lease.
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Eubank Company, a lessee, enters into a lease agreement on January 1, 2021, for equipment. The following data are relevant to the lease agreement: - The term of the noncancelable lease is 4 years. Payments of $978,446 are due on January 1 of each year. The first payment is January 2021. - The fair value of the equipment on January 1, 2021 is $3,500,000. The equipment has an economic life of 6 years with nosalvage value. - Eubank uses the straight-line method of depreciation. - Eubank’s implicit rate is 8%. - This will be treated as a finance lease (Lessee Perspective). Instructions: Prepare the journal entries on Eubank’s books (lessee) that relate to the lease agreement for the following dates, you do not need to create an amortization schedule. a. January 1, 2021. b. December 31, 2021.