Problem 3: SALE AND LEASEBACK The following information were deemed relevant regarding a sale and leaseback agreement GEE Corp. entered into with EYCH Inc. of a heavy factory equipment on January 1, 2021: Selling Price of the Equipment -P1,500,000 Fair Market Value -P1,200,000 Carrying value on the books of GEE Corp. - P720,000 Remaining life of the equipment – 10years Lease back term - 8years Implicit lease rate – 12% Periodic annual rentals every December 31 -P 200,000 Required: 17. What is the gain/loss to be recognized from the sale and leaseback agreement on the books of GEE Corp. (seller/lessee) on January 1? 18. What is the interest expense to be recognized in 2021?

Problem 3: SALE AND LEASEBACK The following information were deemed relevant regarding a sale and leaseback agreement GEE Corp. entered into with EYCH Inc. of a heavy factory equipment on January 1, 2021: Selling Price of the Equipment -P1,500,000 Fair Market Value -P1,200,000 Carrying value on the books of GEE Corp. - P720,000 Remaining life of the equipment – 10years Lease back term - 8years Implicit lease rate – 12% Periodic annual rentals every December 31 -P 200,000 Required: 17. What is the gain/loss to be recognized from the sale and leaseback agreement on the books of GEE Corp. (seller/lessee) on January 1? 18. What is the interest expense to be recognized in 2021?

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 13E: Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with...

See similar textbooks

Similar questions

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.
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line method
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.
Please kindly answer. Thankyou
Please answer it in good accounting form. Thankyou
Current Attempt in Progress On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $439,085. The lease agreement contained the following provisions. Lease term З уears Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/2021) $141,000 Residual value at end of the lease term $85,000 Residual guaranteed by lessee $56,000 Interest rate implicit in lease 7% The lease is cancellable only with the permission of the lessor. Holmes Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor. 1. (a) Prepare the lease payment schedule for the lessee. (Round factor values to 4 decimal places, eg. 5,2752 and final answers to O decimal places, eg. 5,275.) Holmes Ltd (lessee) Lease payments schedule Minimum lease Interest Liability reduction Liability balance payments…
Accounting On 30 June 2022, Sock Ltd leased equipment to Shoe Ltd. The equipment was in the records of Sock Ltd on 30 June 2022 at its fair value of $123,000. The lease agreement contained the following provisions: Lease term 3 years Economic life of equipment 4 years Annual rental payment, in arrears (first payment on 29/6/23) $45,000 Residual value at end of the lease term $10,000 Residual value guaranteed by lessee $4,000 Interest rate implicit in lease 8% Present value of $1 in 3 years at 8 % 0.7938 Present value of an annuity of $1 for 2 payments at 8% 1.7833 Present value of an annuity of $1 for 3 payments at 8% 2.5771 The equipment will be depreciated by Shoe Ltd on a straight-line basis. Shoe Ltd intends to return the equipment to Sock Ltd at the end of the lease term. The lease has been classified as a finance lease by Sock Ltd. Initial direct costs for setting up the lease were incurred by both parties: $855 for Shoe…
What amount should be recognized by Ripple as profit from sale for the year ended December 31, 2020? *a. 1,150,800b. 1,550,800c. 400,000d. 355,080
NEED ASAP
On 30 June 2020, Cambridge Ltd leased a vehicle to Awamutu Ltd. Cambridge Ltd had purchased thevehicle on that day for its fair value of $89,721. The lease agreement, which cost Cambridge Ltd $1,457 tohave drawn up, contained the following provisions:Lease Term 4 yearsAnnual payment, payable in advance on 30 June each year $23,900Economic life of vehicle 6 yearsEstimated residual value at end of economic life 52,000Estimated residual value at end of lease term $15,000Residual value guaranteed by lessee $15,000Interest rate implicit in the lease 7%The lease is cancellable, but cancellation will incur a monetary penalty equivalent to 2 years rentalpayments. Included in the annual payment is an amount of $1900 to cover reimbursement for the costsof insurance and maintenance paid by the lessor. The directors of Awamutu Ltd have indicated that theyare interested in acquiring the asset at the end of the lease.a) Prepare the following for the lessor, Cambridge Ltd:1. the lease receipts…