On January 1, 2024, Burrito Bill's leased restaurant equipment from Oval Corporation under a nine-year lease agreement. The leaseagreement specifies annual payments of $75,000 beginning January 1, 2024, the beginning of the lease, and at each December 31thereafter through 2028. The equipment was acquired recently by Oval at a cost of $540,000 (its fair value) and was expected to havea useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have anexpected residual value at the end of the lease term of $150,000) Oval seeks a 10% return on its lease investments By thisarrangement, the lease is deemed to be an operating leaseNote: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD. of $1Required:a. What will be the effect of the lease on Burrito Bill's earnings for the first year? (ignore taxes)b. What journal entries will the lessee record during 2024 relating to this lease?c. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Burrito Ball's? pignoretaxes)Complete this question by entering your answers in the tabs below.Required BRequired AWhat will be the effect of the lease on Burrito Bill's earnings for the first year? (ignore taxes)Note: Enter any decreases with a minus sign.(2,803)Required CEffect on earnings

On January 1, 2024, Burrito Bill's leased restaurant equipment from Oval Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $75,000 beginning January 1, 2024, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Oval at a cost of $540,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $150,000.) Oval seeks a 10% return on its lease investments By this arrangement, the lease is deemed to be an operating lease. Note: Lise tables Exe

On January 1, 2024, Burrito Bill's leased restaurant equipment from Oval Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $75,000 beginning January 1, 2024, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Oval at a cost of $540,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $150,000.) Oval seeks a 10% return on its lease investments By this arrangement, the lease is deemed to be an operating lease. Note: Lise tables Exe

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Gordon Inc., a private company that follows ASPE, entered into a lease agreement with Canada Leasing Corporation to lease a warehouse for six years. Annual lease payments are $21,000, payable at the beginning of each lease year. Gordon Inc. signed the lease agreement on January 1, 2021, and made the first payment on that date. At the end of the lease, the machine will revert back to Canada Leasing Corporation. The normal useful life of the warehouse is 10 years. At the time of the lease, the warehouse could be purchased for $108,000. Gordon does not know the implicit rate of the lease; Gordon's incremental borrowing rate is 10%. Gordon uses straight-line depreciation for this type of asset. Required: Using the three criteria under ASPE, prove whether this is an operating or capital lease. Prepare a lease amortization schedule for the lease. Round all amounts to the nearest dollar. Prepare the journal entries for 2021 and 2022 for Gordon Inc. Round amounts to the nearest…
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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.
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At January 1, 2024, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2024, the beginning of the lease, and on each December 31 thereafter through 2031. The equipment was acquired recently by Crescent at a cost of $171,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $4,666. Crescent seeks a 8% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. 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: What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)? Note: Enter decreases with negative sign. What will be the…
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