On September 30, 2024, Truckee Garbage leased equipment from a supplier and agreed to pay $125,000 annually for 15 years beginning September 30, 2025. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Truckee recorded a $1,214,031 lease liability. Required: Determine the interest rate implicit in the lease agreement. 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) Interest rate implicit %

On September 30, 2024, Truckee Garbage leased equipment from a supplier and agreed to pay $125,000 annually for 15 years beginning September 30, 2025. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Truckee recorded a $1,214,031 lease liability. Required: Determine the interest rate implicit in the lease agreement. 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) Interest rate implicit %

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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Under leases
On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $80,000 each, beginning December 31, 2021, and at each December 31 through 2023. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 5%. Winn also paid a $100,000 advance payment at the beginning of the lease in addition to the first $80,000 lease payment. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value.Required:Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2023. Winn’s fiscal year is the calendar year.
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Lee Company entered into a lease of warehouse on January 1, 2020. The lease contract provided the following information: Lease term 5 years Estimated useful life of the leased asset 15 years Annual rental payable at the end of each year 600,000 Interest rate implicit in the lease 12% Included in the lease agreement an option for the lessee to extend the lease term for another 5 years. At the commencement date, the exercise of the extension option is not reasonably certain. At the December 31, 2022, the lessee decided to extend the lease for further 5 years. The agreement was finalized on January 1, 2023 with following arrangement on the extension option: New annual rental payable at the end of each year 700,000 New interest rate implicit in the lease 10% REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
On January 1, 2024, Lesco Leasing leased equipment to Quality Services under a finance/sales-type lease designed to earn Lesco a 14% rate of return for providing long-term financing. The lease agreement specified: 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). a. Ten annual payments of $59,000 beginning January 1, 2024, the beginning of the lease and each December 31 thereafter through 2032. b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to Lesco was $321,104. c. The lease qualifies as a finance lease/sales-type lease. d. A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $5,000 per year are specified, beginning January 1, 2024. Lesco was to pay this cost as incurred, but lease payments reflect this expenditure. Also included in the $59,000 payments is an insurance premium…
Three different lease transactions are presented below for Pharoah Enterprises. Assume that all lease transactions start on January 1, 2024. Pharoah does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Pharoah Enterprises prepares its financial statements using ASPE. Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Manufacturing Equipment 5 years 15 years $16,800 $117,600 $75,852 3.5% Office Equipment 6 years 3 years 7 years 6 years $18,000 $4,680 $102,000 $21,000 $94,356 $12,060 Vehicles 4% 8% Assume that Pharoah Enterprises has purchased the vehicle for $102,000 instead of leasing it and that the amount borrowed was $102,000 at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. (List all debit entries before credit entries. Credit…
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Cat Emporium Corp. (CEC) reports its financial results in accordance with IFRS. On January 1, 2020, CEC entered into an agreement to lease equipment for five years. Details of the lease follow: The lease is payable annually in five equal instalments of $10,000. The first payment is due on January 1, 2020, the commencement date of the The lease includes an option to purchase the equipment at the end of the lease term for $20,000. The useful life of the equipment is nine At the inception of the lease, the estimated fair market value of the equipment at the end of the lease term was $30,000; the estimated residual value at the end of its useful life was $0. CEC uses the straight-line method to depreciate all its right-of-use (ROU) CEC’s incremental borrowing rate for transactions of this type is 6%. The implicit rate in the lease is not readily determinable by CEC exercised its option to purchase on January 1, CEC’s year end is December Required: Prepare a lease liability…
On 1 January 2023 Fellini Co entered into a contract for the right to use a machine for a four-year period. The contract meets the definition of a lease under IFRS 16 Leases. Fellini Co paid a deposit of $700,000 on the commencement of the lease on 1 January 2023 and a further 3 instalments of $700,000 are payable annually in advance. The present value of the future lease payments was $1,871,100 on commencement of the lease. The interest rate implicit in the lease is 6%. What amount will appear under non-current liabilities in respect of this lease in the statement of financial position of Fellini Co at 31 December 2023?
Neal Company entered into a nine-year lease on a warehouse on Dec. 31, 2019. Lease payments of 520,000 which included executory cost of 20,000 is due annually, beginning on Dec. 31, 2020 and every Dec. 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract is estimated at the present value of 200,000. The interest rate implicit in the lease is 9%. The PV of an ordinary annuity of 1 for nine years at 9% is 5.60. 1. What amount should be reported as lease liability on December 31,2020? a. ₱ 4,500,000 b. ₱ 2,912,000 c. ₱ 4,680,000 d. ₱ 2,800,000 2. What is the initial recognition of the right of use asset? a. ₱ 3,112,000 b. ₱ 2,800,000 c. ₱ 3,000,000 d. ₱ 4,700,000 3. What is the carrying value of the right of use asset on December 31, 2021? a. ₱ 2,520,000 b. ₱ 2,488,889 c. ₱ 2,750,000 d. ₱ 2,666,667
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1. Prepare a table of amortization of the lease liability and interest expense. 2. Prepare journal entries for 2021 and 2022. 3. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume thefair value of the asset is P450,000.