Questions 1-3 On 1/1/2012 ABC, Inc. enters into a 20-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls for annual payments of $20,000, payable at the beginning of each year of the lease (i.e. first payment due on 1/1/2012). At the end of the lease, the right to use the machine transfers back to XYZ. ABC, Inc. declined the choice to purchase the machine outright for $800,000, and the economic life of the machine is believed to be 30 years. There is also an option to renew the lease for an additional 10 years at a reduced rate of $19,000. This does not represent a bargain renewal option that ABC, Inc. is reasonably certain to use. ABC, Inc. uses a 5% discount rate to calculate present values, and generally uses straight line depreciation to depreciate machines assuming a 0% salvage value. In addition, ABC, Inc. spends $20,000 to customize the machinery for use in their factory. They believe that this customization has a useful life of 10 years. What type of lease is this from the perspective of ABC, Inc.? Group of answer choices Operating Capital What (if any) journal entry(ies) should ABC, Inc. record on 1/1/2012? What (if any) journal entry(ies) should ABC, Inc. record on 12/31/20122

Questions 1-3 On 1/1/2012 ABC, Inc. enters into a 20-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls for annual payments of $20,000, payable at the beginning of each year of the lease (i.e. first payment due on 1/1/2012). At the end of the lease, the right to use the machine transfers back to XYZ. ABC, Inc. declined the choice to purchase the machine outright for $800,000, and the economic life of the machine is believed to be 30 years. There is also an option to renew the lease for an additional 10 years at a reduced rate of $19,000. This does not represent a bargain renewal option that ABC, Inc. is reasonably certain to use. ABC, Inc. uses a 5% discount rate to calculate present values, and generally uses straight line depreciation to depreciate machines assuming a 0% salvage value. In addition, ABC, Inc. spends $20,000 to customize the machinery for use in their factory. They believe that this customization has a useful life of 10 years. What type of lease is this from the perspective of ABC, Inc.? Group of answer choices Operating Capital What (if any) journal entry(ies) should ABC, Inc. record on 1/1/2012? What (if any) journal entry(ies) should ABC, Inc. record on 12/31/20122

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

6
N1. Account
6 Company A (lessee) has reached a lease agreement with Company B (assor) to kase a new carpet weaving machine beginning January 1, Year 1. The lease agreement contains the following information • The lease is for five years, requiring annual payments of $10,355.67 at the beginning of the year. • The weaving machine has a fair value at the beginning of the lease of $50,000; an estimated economic life of five years; and a guaranteed residual value of $2,500 (Company A expects that the value will be greater). • Present value of the weaving machine is $47,945.18. • There are no renewal options. At the end of the lease, the weaving machine will be returned to Company B. • Company A depreciates similar equipment that it purchases on a straight-line basis. • Company B sels the annual lease rate al 5% and Company A is aware of the rate. • The lease is a finance lease. COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease Payment Date January 1, Year 1 January 1, Year 1 January…
Hrd.4
Question 3 Apparel Leasing Company signs a lease agreement on January 1, 2021, to lease equipment to Oman Company. The term of the non-cancelable lease is 8 years, and payments are required at the end of each year. The following information related to this agreement: 1. The equipment has a cost and fair value of $9,500,000 to Apparel, an estimated useful life of 10 years, and no residual value at the end of that time. Annual lease rental is $1,441,606. 2. Apparel Company desires to earn an 8% return on its investment. Instructions: A) Prepare an amortization schedule for the lessor for 2021 and 2022. B) Prepare the journal entries on the lessor's books on January 1, 2021 and December 31, 2021.
Question 3 COE Limited is a lessee and has entered into a non-cancellable lease agreement for an equipment on 1 January 2020. The following data is relevant: 1. The lease term is 6 years. Lease payments is $700,000 per annum, payable on 1 January of each year, with the first payment on 1 January 2020. 2. The equipment has a useful life of 8 years with no residual value. 3. COE Limited depreciates similar equipment on a straight-line basis. 4. The interest rate implicit in the lease is 5% per annum. Required (Answers round to the nearest dollar): a. Calculate the present value of the lease payments on 1 January 2020. b. Prepare the journal entries related to the lease agreement in 2020.
8
Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,616, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet?No b. What account will indicate that lease payments have been made?Lease expense From the viewpoint of the lessee, there are two types of lease agreements: operating and capital. In an operating lease, the lessee acquires the right to use an asset for a limited period of time. The lessee is not required to record the right to use the property as an asset or to record the obligation for payments as a liability. 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when…
am. 90.
23
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
Determining Amounts in Operating Lease-Lessee Kulver's Inc. leases equipment from Equip Inc. on January 1 under a 3-year operating lease. Kulver's agrees to pay Equip Inc. $15,000 annually with the first payment due on January 1. As an incentive for Kulver's to sign the lease by January 1, Equip Inc. paid Kulver's Inc. $700. Kulver's also incurred legal fees for the review of the lease agreement ($200) and salaries for employees involved in negotiating the lease ($1,300). Assuming an incremental borrowing rate of 7% for Kulver's Inc., determine the value of the lease liability and the right-of- use asset on January 1 for Kulver's. Note: Round your answers to the nearest whole dollar. Lease liability $ 11,620 X Right-of-use asset $ 41,620✔ Check