On January 1, 20x1, Row Co. leased a machine from Boat, Inc. Information on the lease is as follows Annual rent payable at the beginning of each year P200,000 Lease term 10 years 12 years Useful life of machine Implicit interest rate 10% The lease contract provides Row Co. an option to purchase the machine at the end of the lease term for P100,000. The option price approximates the machine's expected fair value at the end of the lease. Row Co. is reasonably certain to the exercise the option. What amount of interest expense should Row Co. recognize on the lease in 20x1? а. 139,036 b. 135,181 с. 119,036 d. 115,181

On January 1, 20x1, Row Co. leased a machine from Boat, Inc. Information on the lease is as follows Annual rent payable at the beginning of each year P200,000 Lease term 10 years 12 years Useful life of machine Implicit interest rate 10% The lease contract provides Row Co. an option to purchase the machine at the end of the lease term for P100,000. The option price approximates the machine's expected fair value at the end of the lease. Row Co. is reasonably certain to the exercise the option. What amount of interest expense should Row Co. recognize on the lease in 20x1? а. 139,036 b. 135,181 с. 119,036 d. 115,181

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $10,000 over…

A: An agreement of contract that is prepared to transfer the right to use the resources for a…

Q: Prepare the lease payments schedule for the Moose Ltd. Prepare the journal entries in the books of…

A: A lease is a contractual agreement between a lessor (owner) and a lessee (user) granting the lessee…

Q: January 1, 2020, Master Inc. leased new equipment to Kerr Company noncancelable lease, requiring…

A: Implicit rate is at which the present value of cash flow from the assets will make equal to the…

Q: Novak Limited has entered into an agreement to lease manufacturing equipment. The following terms…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $30,000 over…

A: A lease is a contractual agreement between two parties, known as the lessor and the lessee, in which…

Q: On January 1, 2020 Company A leases a machine from B Corp through a contract that requires 5…

A: Finance Lease is a lease which contains the following, if any one of following is satisfied then…

Q: Fitbit Ltd has leased a machine on the following terms: Date of entering lease 1 July 2019 Duration…

A: Lease: It refers to a contractual agreement whereby one party, known as lessor, grants the right to…

Q: Boyce Company leased a music studio from Justine company on a 6-year lease term at P250,000 annual…

A: Annual lease payment=P250000Price at the end of 6 years=P200000Interest rate=12%Economic life=10…

Q: on january 1, 2021, reindeer signed a long term lease for an office building. the term of the lease…

A: Lease means giving out the assets by lessor to lessee to use that assets in return of rent.…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over…

A: An agreement of contract that is prepared to transfer the right to use the resources for a…

Q: The Sirap Co. leased equipment from the Xylo co. with a fair market value of $200,000. The lease…

A: A lease is a contract entered into between two parties, the lessor and the lessee, in which the…

Q: Huskies Together Company leased equipment from Caterpillar, beginning on December 31, 2020. The…

A: For Year 2020 Journal Entries - Huskies Together Company Date Particulars Debit Credit…

Q: On 1 January 20X2 Grocers R Us entered into a lease to rent a mid-sized tractor trailer from TT Inc.…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: On 1/1/24, Half Inc entered into a lease agreement with Holes Co. Half leased a machine from Holes…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending…

A: A lease is a legal agreement between a lessor (the owner of an asset) and a lessee (the user of the…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

100%

On January 1, 20x1, Row Co. leased a machine from Boat, Inc. Information on the lease is as follows:
Annual rent payable at the beginning of each year
P200,000
10 years
12 years
Lease term
Useful life of machine
Implicit interest rate
10%
The lease contract provides Row Co. an option to purchase the machine at the end of the lease term for
P100,000. The option price approximates the machine's expected fair value at the end of the lease. Row
Co. is reasonably certain to the exercise the option. What amount of interest expense should Row Co.
recognize on the lease in 20x1?
а. 139,036
b. 135,181
c. 119,036
d. 115,181

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

YK Incorporated leased road building equipment from Bajan Leasing on January 1, 2021. Bajan purchased the equipment from International Machines at a cost of $148,930. Related Information: Lease term 2 years (4 semi-annual periods) Quarterly rental payments $40,000 at the beginning of each period Economic life of asset 2 years Fair value of asset $148,930 Implicit interest rate 10% (Also lessee’s incremental borrowing rate) Required:Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the beginning of the lease through January 2022. Amortization of the right-of-use asset is recorded at the end of each fiscal year (December 31) on a straight-line basis.
Lessee enters into a three year lease of equipment and agrees to make the following annual payments at the end of each year 10,000 in year one, 12,000 in year two and 14,000 in year three. Discount rate is approx. 4, 235% and right of use asset is depreciated on a straight line basis over the lease term. What is the value of the lease liability at the end of years 2 & 3?
On December 31, 2020, Roe Company leased a machine from Colt Company for a five-year period Equal annual payments under the lease P1,050,000 including P50,000 annual executory cost and are due on December 31 of each year. The first payment was made on December 31, 2020, and the second payment was made on December 31, 2021. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was P4,170.000.On December 31, 2021, what amount should be reported as lease liability?
As a supplier of heavy-duty machineries, Pine Ltd leased a machine to Bulla Ltd on an 8-year non-cancellable lease. The following information is available: Lease term 8 years i) Residual value at the end of the term $10 000 Ii) Bargain purchase option at the end of the term $20 000 iii) Minimum lease payments (at the end of each year) $120 000 iv) Service costs included in minimum lease payments $20 000 Rate implicit in the contract 12% Cumulative present value factor at 12% for 8 years 4.9676 Present value factor at 12% for 8th year 0.4039 Required: Which of the items from i) – iv) above will not be included in determining the leased asset and leased liability at the inception of the lease, and explain why not? ANSWER a): What is the amount to be recorded as an asset and a liability in the books of the lessee that is in accordance with AASB 16 Leases?
On 1 July 2020, Table Ltd leased equipment from Chair Ltd. The following are details of the equipment and the lease contract: On 1 July 2020 equipment has a fair value of $110,000 (at fair value in Chair Ltd’s accounts) Lease term is 5 years, useful life of the equipment is 6 years, and Table Ltd will return the equipment at the end of the lease term Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2020, with $24,000 as the annual payment Residual value of the equipment at the end of the lease term is $8,000, with Table Ltd guaranteeing 75% of the residual value The interest rate implicit in the lease arrangement is 6%. In setting up the lease arrangement Table Ltd incurred costs of $2,354, while Chair Ltd incurred costs of $3,141. Required: a) Prepare the necessary journal entries for Table Ltd on 1 July 2020. b) Calculate interest and depreciation expense incurred on 30 June…
Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $990,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease a. Finance lease: Date Jan. 1, 2023 Account To record the start of the finance lease. Dec. 31, 2023 To record the amortization of leased asset. Dec. 31, 2023 Dec. 31, 2024 Dec. 31, 2024 To record the lease payment. To record the amortization of leased asset. To record the lease payment. > > > > > > > > > > Debit Credit 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
North Blue Company leased a new copier from Kixko Company on June 1, 2019, under a lease with the following information: Lease term 10 years Annual rental payable at the beginning of each lease year $45,000 Useful Life of machine 10 years Implicit interest rate 12% Present value factor for an annuity of 1 in advance for 10 periods at 12% 6.3282 Present Value factor for 1 for 10 periods at 12% 0.32197 North Blue has the option to purchase a machine on June 1, 2023, by paying $75,000, which approximates the fair value of the machine on the option exercise date. On May 1, 2019, North Blue should record a right-of-use asset in the amount of a.$284,769. b.$292,991. c.$450,000. d.$276,548.