On January 1, 2020, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $5,000. 1. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. The fair value of the equipment on January 1, 2020, is $150,00O, and its cost is $120,000. 3. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight- line basis. Bensen set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. 4. 5. 6.

On January 1, 2020, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $5,000. 1. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. The fair value of the equipment on January 1, 2020, is $150,00O, and its cost is $120,000. 3. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight- line basis. Bensen set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. 4. 5. 6.

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.
Herald Company is a dealer in equipment. On January 1, 2020, an equipment was leased to another entity with the following provisions: Annual rental payable at the end of each year P1,500,000 Lease term and useful life of machinery 5 years Cost of equipment P4,000,000 Residual value – unguaranteed P500,000 Implicit interest rate 12% At the end of the lease term on December 31, 2024, the equipment will revert to the lessor, Herald Company. The perpetual inventory system is used. Herald Company incurred initial direct cost of P200,000 in finalizing the lease agreement. 1. What is the total financial revenue to be reported by Herald Company? 2. What is the interest revenue to be recognized by Herald for 2020? 3. Herald Company should report profit on the sale for 2020 at?
Michelle Company leased equipment to May Corporation on July 1, 2012 for an eight-year period expiring June 30, 2020. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2012. The cash selling price of the equipment is P3,520,000 which reflects its present value, and the cost of the equipment on Michelle's accounting records is P2,800,000. The lease is appropriately recorded as a dealer's lease. What is the amount of the resulting gross profit from this sale at the inception of the lease? a. P45,000 b. P90,000 c. P720,000 d. P1,280,000 Use the same information given above, What other revenue should Michelle report in her income statement for year ended December 31, 2012? a. P292,000 b. P146,000 c. P176,000 d. P352,000 e. P0
Alpha Company buys equipment for leasing to various manufacturing entries. On January 1, 2020, Alpha Company leased an equipment to another entity. The cost of the equipment to Alpha Company was P1,377,480 which approximates the fair value on the lease date. The expected economic life of the equipment is also 4 years. The lease payments stipulated in the leae are P440,000 per year in advance for a 4 year period of the lease. The payments include P40,000 executory cost per year. The title to the equipment remains in the hands of Alpha Company at the end of the lease term, although only nominal residual value is expected at that time. The implicit interest rate in the lease is 11%. The fiscal year of Alpha Company ends December 31. Required: Compute the total financial revenue. Prepare an amortization schedule for the lease receivable and interest income. Prepare journal entries for 2020, 2021,2022 and 2023.
Maya Company leased equipment from Waya Company on July 1, 2020 for an eight -year period expiring June 30, 2028. Equal payment under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest contemplated by Maya and Waya is 10%. The cash selling price of the equipment is P3,520,000 and the carrying amount is P2,800,000. The lease is appropriately recorded as a sales type lease. What amount of profit on the sale should be recorded for year ended December 31, 2020?
Christina Co. has a factory equipment with a carrying amount of P700,000 and has a remaining useful life of 7 years. On January 1, 2020, Christina agreed to an exchange transaction with Kat & Inc. to transfer the equipment to the latter. The transfer satisfied the requirements of PFRS 15 to be a sale and Christina immediately leased it back for a lease term equal to the remaining life of the equipment. The sales price amounted to P500,000 while annual rental payable at the end of each year is P100,000 for an implicit rate of 10%. Selling price is equal to fair value. How much loss shall Christina recognize in relation to the sale and leaseback transaction? a. 681,578.63 b. 200,000 c. 194,736.75 d. 5,263.25
On January 1, 2020, Baal Co. (lessee) entered into a contract of lease with Raiden Shogun Co. (lessor)that allows Baal to use specialized equipment for 4 years. The equipment had a useful life of 5 years.The following terms were agreed on January 1, 2020:• P250,000 annual rental, the first payment will be on on December 31, 2020 followed bysubsequent payments every December 31 hereafter, for a total of 4 payments.• Implicit rate of the lease was 8%, while the incremental borrowing rate of Baal was 10%.• The lease agreement provides for a purchase option of P100,000, at the end of the lease term.Baal will exercise the option with reasonable certainty.The option was exercised by Baal Co. at the end of the lease term.(round off PV factors to 4 decimal places) Unit 4 Exercise Worksheet2Requirements: (round off any peso value to the nearest one peso to eliminate centavos, if any)a. What amount of lease liability will be recorded by Baal on January 1, 2020? (Round off presentvalue factors to…
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. 15. 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.
Maureen Inc. is a dealer of machinery. On January 1, 2020, it leased a machinery to another entity under the following terms:· Annual rental payable at the end of each year: 1,500,000· Lease term and useful life of machinery: 5 years· Cost of machinery in Maureen’s books: 4,000,000· Fair value of machinery on commencement: 6,000,000· Guaranteed residual value upon return: 500,000· Implicit rate: 12%Relevant PV factors are: PV of ordinary annuity for 5 periods at 12% is 3.60 and PV of 1 for 5 periods at 12% is 0.57. Machinery will revert back to Maureen at end of lease term. Fair value of the asset on December 31, 2024 (end of lease) is 350,000. Maureen also incurred initial direct costs of P200,000. How much is the gross profit of Maureen on January 1, 2020? a. 1,800,000 b. 1,485,000 c. 1,685,000 d. 2,000,000
Derozan Corp. manufactured equipment at a cost of $244273 and leased it to B Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. Eight years is considered a major part of the asset’s economic life. Equal payments under the lease are $62200 and are due on January 1 and July 1 of each year. The first payment was made on January 1, 2019. The implicit rate used by Derozan is 8%. Additional information: Present value of an annuity due of $1 for 8 periods at 8% 6.21 Present value of an annuity due of $1 for 16 periods at 4% 12.12 What amount of selling profit or loss should Derozan report for the year ended December 31, 2019?
Angelo Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P2,300,000. On January 1, 2020, Angelo Company leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual payment are due each January 1 and the first payment was made on January 1, 2020. The residual value of the machine is P200,000. The lease terms are arranged so that a return of 12% is earned by Angelo Company. What is the annual lease payment payable in advance required to yield the desired return?