Problem 1 On January 1, 2020, Petty Company leased a machine with the following provisions. Annual lease payment in advance at the beginning of each year, 1,000,000 10 years 12 years starting January 1, 2020 Lease term Useful life of machine Implicit interest rate in the lease 12% PV of an ordinary annuity of 1 at 12% for 10 periods PV of an annuity of 1 in advance at 12% for 10 periods PV of 1 at 12% for 10 periods 5.650 6.328 0.322 The entity has an option to purchase the machine on January 1, 2030 by paying P200,000. At the commencement date, it is reasonably certain that the purchase option will be exercised. Required: Prepare journal entries on the books of Petty Company for 2020 and 2021.

Problem 1 On January 1, 2020, Petty Company leased a machine with the following provisions. Annual lease payment in advance at the beginning of each year, 1,000,000 10 years 12 years starting January 1, 2020 Lease term Useful life of machine Implicit interest rate in the lease 12% PV of an ordinary annuity of 1 at 12% for 10 periods PV of an annuity of 1 in advance at 12% for 10 periods PV of 1 at 12% for 10 periods 5.650 6.328 0.322 The entity has an option to purchase the machine on January 1, 2030 by paying P200,000. At the commencement date, it is reasonably certain that the purchase option will be exercised. Required: Prepare journal entries on the books of Petty Company for 2020 and 2021.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.5AP

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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.
Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2016. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2016. Required Assume that the lease is treated as an operating lease. Will the value of the forklift appear on Koffmans balance sheet? What account will indicate that lease payments have been made? Assume that the lease is treated as a capital lease. Prepare any journal entries needed when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040 (1,5104). Prepare the journal entry to record the first lease payment on December 31, 2016. Calculate the amount of depreciation expense for the year 2016. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2016?
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.
Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
On January 1, 2020, Petty Company leased a machine with the following provisions. Annual lease payment in advance at the beginning of each year, 1,000,000 10 years 12 years starting January 1, 2020 Lease term Useful life of machine Implicit interest rate in the lease 12% PV of an ordinary annuity of 1 at 12% for 10 periods PV of an annuity of 1 in advance at 12% for 10 periods PV of 1 at 12% for 10 periods 5.650 6.328 0.322 The entity has an option to purchase the machine on January 1, 2030 by paying P200,000. At the commencement date, it is reasonably certain that the purchase option will be exercised. Required: Prepare journal entries on the books of Petty Company for 2020 and 2021.
compute the lease liability on December 31, 2019
Problem 4 On January 1, 2021, Twice Company entered into a lease agreement with the following: Floor space Annual rental payable at the end of each year Implicit rate in the lease 1,500 square meters 200,000 12% 12 years 6.1944 Lease term Present value of an ordinary annuity at 12% for 12 periods On January 1, 2024, the lessee and the lessor agreed to amend the original terms of the lease with the following information: Additional floor space Increase in rental payable at the end of each year Implicit rate in lease Present value of an ordinary annuity of 1 at 10% for 9 periods 2,000 square meters 300,000 10% 5.759 1. What amount should be reported as lease liability on January 1, 20217 2. What amount should be reported as additional lease liability on January 1, 2024? 3. What amount should be reported as total interest expense for 20247
Problem 11-5 On January 1,2020, Madelle Company entered into a lease for floor space with the following information. Floor space 5,000 square meters Annual rental payable at the end of each year 200,000 Lease term 5 years Implicit in the elase 10% Present value of an ordinary annuity of 1 for 10% at 5 periods 3.7908 On Jnaury 1, 2022, Madelle Company and the lessor agreed to amend the original terms of the lease with the following information. Floor space 3,750 square meters Annual rental payable at the end of each year 150,000 Implicit in the elase…
On January 1, 2020, Yuri Company leased a machine with Problem 11-6 (IFRS) the following information: 100,000 Annual rental payable at the end of each year 5 years Lease term Implicit rate in the lease Present value of an ordinary annuity of 1 at 6% for 5 periods 6% 4.2124 On January 1, 2022, Yuri Company and the lessor agreed to amend the original terms of the lease by reducing the annuol lease payment by P20,000 and increasing the implicit rate to 8%. The present value of an ordinary annuity of 1 at 8% for 3 periods is 2.5771. Required: 1. Prepare the table of amortization for 2020 and 2021. 2. Prepare journal entries for 2020. 3. Remeasure the lease liability on January 1, 2022. 4. Prepare the table of amortization for 2022, 2023 and 2024. 5. Prepare the journal entries for 2022.
8-year lease of a floor of building with useful life of 15 years Annual rental for the first three years payable Problem 11-7 (IFRS) On January 1, 2021, Northstar Company entered into an with the following terms: at the end of each year Annual rental for the next five years payable at the end of each year Implicit interest rate PV of an ordinary annuity of 1 at 10% for three periods PV of an ordinary annuity of 1 at 10% for five periods. PV of at 10% for three periods 300,000 400,000 10% 2.49 3.79 0.75 The lease provided for neither a transfer of title to the lessee nor a purchase option. 1. What amount should be reported as lease liability on January 1, 2021? a. 1,516,000 b. 2,263,000. c. · 1,884,000 d. 1,697,250 2. What amount should be reported as interest expense for 2021? a. 188,400 b. 226,300 с. 151,600 d. 169,725 3. What amount should be reported as interest expense for 2024? а. 151,460 b. 126,606 c. 164,964 d. 200,000 4. What amount should be reported as lease liability on…
Fact pattern On January 1, 2019, Lessee enters into a 4-year lease of an asset for an annual rent of P10,000 payable at the beginning of each year. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. 9. The initial measurement of the right-of-use asset is determined as follows: P10,000 x PV of an ordinary annuity of P1 @10%, n=4. 10. The initial measurement of the lease liability is determined as follows: P10,000 x PV of an annuity due of P1 @10%, n=4.