Oriole Co. purchases land and constructs a service station and car wash for a total of $472500. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $510000 and mmediately leased from the oil company by Oriole. Fair value of the land at time of the sale was $46500. The lease is a 10-year, noncancelable lease. Oriole uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Oriole at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2021 $510000.00 Dec. 31, 2021 $83000.15 $51000.00 $32000.15 477999.85 Dec. 31, 2022 83000.15 47799.99 35200.16 442799.69 Dec. 31, 2023 83000.15 44279.97 38720.18 404079.51 The total lease-related income recognized by the lessee during 2022 is which of the following? O $3750 O $37500 O $0 O $2500

Oriole Co. purchases land and constructs a service station and car wash for a total of $472500. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $510000 and mmediately leased from the oil company by Oriole. Fair value of the land at time of the sale was $46500. The lease is a 10-year, noncancelable lease. Oriole uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Oriole at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2021 $510000.00 Dec. 31, 2021 $83000.15 $51000.00 $32000.15 477999.85 Dec. 31, 2022 83000.15 47799.99 35200.16 442799.69 Dec. 31, 2023 83000.15 44279.97 38720.18 404079.51 The total lease-related income recognized by the lessee during 2022 is which of the following? O $3750 O $37500 O $0 O $2500

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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At the beginning of 2024, VHF Industries acquired a machine with a fair value of $6,000,000 by signing a four-year lease, which is the expected useful life of the machine passing. The lease is payable in four annual payments of $1,892,825 at the end of each year. (FV of $1, PV of $1, FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What is the effective rate of interest implicit in the agreement? 2-4. Prepare the lessee's journal entries at the inception of the lease, the first lease payment at December 31, 2024 and the second lease payment at December 31, 2025. 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 journal entries for 2024. Complete this question by entering your answers in the tabs below. Req 1 Req 2 to 4 Req 5 Suppose the fair…
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