Please provide solution and explanation Michelle Company enters a 12-year lease of an office unit of a building, with an option to extend for anadditional 6 years for an annual rental of P 1,000,000, payable in advance. The contract specifies that thelease payment will increase every 3 years based on increase in the Consumer price index from the precedingthree years. The CP1 at the commencement date is P 125.The rate implicit in the lease is not reliably determinable. Michelle's incremental borrowing rate is 5%, whichreflects the fixed rate at which Michelle could borrow an amount similar to the value of the office unit, in thesame currency for the twelve-year term and with similar collateral.At the beginning of the 4th year, the CP1 is 135.REQUIRED:a.) Journal entry at the commencement of the leaseb.) Journal entry at the end of the first year of the lease term (and financial year)c.) Journal entries at the beginning and at the end of the fourth year

Lease agreement The purpose of lease agreement is to use the assets of the lessor by the lessee for…

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Business

Accounting

Please provide solution and explanation

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 4P: Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides...

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Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Lessee enters into a 10-year lease of property with annual lease payments of P50,000, payable at the beginning of each year. The contract specifies that lease payments will increase every two years on the basis of the increase in the Consumer Price Index for the preceding 24 months. The Consumer Price Index at the commencement date is 125. The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 5 per cent per annum, which reflects the fixed rate at which Lessee could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a 10-year term, and with similar collateral. Discount factor for 5% for 9 periods is 7.10782.Lessee expects to consume the right-of-use asset’s future economic benefits evenly over the lease term and, thus, depreciates the right-of-use asset on a straight-line basis.At the beginning of the third year of the lease the Consumer Price Index is 135.Determine the amount of lease liability…
The lease requires equal rental payments of $30,580 at the beginning of each year of the term. The PV of the lease payments is $177,030. The company pays all executory costs directly to third parties. The appropriate interest rate is 10.57%. Assume IFRS 16 applies. Both the lessor and lessee have December 31 year ends. How much total revenue will be recorded by the lessor in its books in Year 1 in relation to this lease assuming (1) the fair value of the equipment equals the PV of the lease payments and (2) the lessor is an equipment vendor? If applicable, include interest, sales, and rent in the revenue calculation. $187,697 $192,510 $197,323 $202,135 $206,948
On January 1, 2020, Chan Company entered in a five-year lease agreement with rentals of P100,000 payable at yearend for the first three years and P150,000 payable at the succeeding yearends. At an implicit interest rate of 10%, the lease liability and right of use asset was initially recorded at P475,322. The asset will revert to the lessor at a guaranteed residual value at the end of the lease term. The fair value of the asset on December 31, 2024 is P35,000. How much is the carrying amount of the lease liability on December 31, 2022? How much is the carrying amount of the right of use asset as of yearend 2021? How much is the total amount to be reflected on the 2024 profit or loss arising from the lease?
On January 1, 2020, Chan Company entered in a five-year lease agreement with rentals of P100,000 payable at yearend for the first three years and P150,000 payable at the succeeding yearends. At an implicit interest rate of 10%, the lease liability and right of use asset was initially recorded at P475,322. The asset will revert to the lessor at a guaranteed residual value at the end of the lease term. The fair value of the asset on December 31, 2024 is P35,000. 1. How much is the carrying amount of the lease liability on December 31, 2022? 2. How much is the carrying amount of the right of use asset as of yearend 2021? 3. How much is the total amount to be reflected on the 2024 profit or
On January 1, 2019, BTS Company enters into a 10-year lease of machinery with annual lease payments of P800,000 payable at the beginning of each year. The contract specifies that the lease payments will increase every two years on the basis of the increase in consumer price index for the preceding 24 months. The consumer price index at the commencement date is 140. The rate implicit in the lease is not readily determinable. Lessee’s incremental borrowing rate is 8% per annum, which reflects the fixed rate at which lessee could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a ten-year term and with similar collateral. At the beginning of third year (January 1, 2021) of the lease, the consumer price index is 160. How much is the balance of the lease liability as of December 31, 2021?
The following information pertains to a leased contract entered into by Blue Company, lessee, on January 1, 2018: Lease term, 5 years, useful life of the leased asset, 20 years; Annual rental payable at year-end, P800,000 and the implicit rate is10%. The lease contract contains an option for Blue Company to extend for another 5 years but at the commencement of the lease, the exercise of the option is not reasonably certain, however on January 1, 2021, Blue Company decided to extend the lease term by another 5 years. However, the annual rental starting 2023 (6th year) will be P1,000,000 and the new implicit rate is 8%. How much is the depreciation expense in 2021?
On January 1, 2020 ABC Company leased a building to XYZ Company for a 10-year term at an annual rental of P500,000. At the inception of the lease, ABC received P2,000,000 covering the first two years' rent of P1,000,000 and a security deposit of P1,000,000. This deposit will not be returned to XYZ upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the P2,000,000 should be shown as current and noncurrent liability in ABC's December 31, 2020 statement of financial position? a. Current liability P0, Noncurrent liability P2,000,000 b. Current liability P500,000, Noncurrent liability P1,000,000 c. Current liability P1,000,000, Noncurrent liability P1,000,000 d. Current liability P1,000,000, Noncurrent liability P500,000
On January 1, 2020, Nge Company leased a building to Lol Corp. for a ten-year term at an annual rental of P140,000.At inception of the lease, Nge received P560,000 covering the first two years' rent of P280,000 and a security deposit ofP280,000. This deposit will not be returned to Lol upon expiration of the lease but will be applied to payment of rent for thelast two years of the lease. What portion of the P560,000 should be shown as a current and long-term liability, respectively,in Nge's December 31, 2020 balance sheet? Current Liability Long-term Liabilitya. P0 P560,000b. P140,000 P280,000c. P280,000 P280,000d. P280,000 P140,000