Sandhill, Inc. manufactures machinery used in the mining industry. On January 2, 2025, it leased equipment with a cost of $560000 toBlue Co. The 5-year lease calls for a 20% down payment and equal annual payments at the end of each year. The equipment has anexpected useful life of 5 years. If the selling price of the equipment is $860000, and the rate implicit in the lease is 8%, what are theequal annual payments?8%, 5 periods10%, 5 periodsO $181493O $159550O $172314O $215393PV AnnuityDue4.312134.16987eTextbook and MediaPV OrdinaryAnnuity3.992713.79079PV Single Sum0.680580.62092

Answered: Image /qna-images/answer/7402c004-a952-4a45-965c-140f56dfd9ee.jpg

Answered: Sandhill, Inc. manufactures machinery…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Gordon Inc., a private company that follows ASPE, entered into a lease agreement with Canada Leasing Corporation to lease a warehouse for six years. Annual lease payments are $21,000, payable at the beginning of each lease year. Gordon Inc. signed the lease agreement on January 1, 2021, and made the first payment on that date. At the end of the lease, the machine will revert back to Canada Leasing Corporation. The normal useful life of the warehouse is 10 years. At the time of the lease, the warehouse could be purchased for $108,000. Gordon does not know the implicit rate of the lease; Gordon's incremental borrowing rate is 10%. Gordon uses straight-line depreciation for this type of asset. Required: Using the three criteria under ASPE, prove whether this is an operating or capital lease. Prepare a lease amortization schedule for the lease. Round all amounts to the nearest dollar. Prepare the journal entries for 2021 and 2022 for Gordon Inc. Round amounts to the nearest…
On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease term is six-year requires payment of $87,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. If the fair value of the machine is $520.000, and the machine will be reverting to GMC Corp at the end of lease term. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. The annual depreciation for the leased machine at Arab Corp. as lessee is closed to: a. $43,366. b. $48,661. c. $72,394. d. $54,295.
American Food Services, Incorporated leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2024. The lease agreement for the $5.3 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton's implicit interest rate was 10%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of S1, FVA of $1, PVA of S1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2024. 2. Prepare an amortization schedule for the four-year term of the lease. 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2024 and 2026.
Pharoah Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it to Provincial Airlines Corp. for a period of 10 years. Both Pharoah and Provincial Airlines follow ASPE. The equipment's normal selling price is $210,482 and its unguaranteed residual value at the end of the lease term is estimated to be $13,000. Provincial Airlines will make annual payments of $22,600 at the beginning of each year and pay for all maintenance and insurance. Pharoah incurred costs of $105,000 in manufacturing the equipment and $7,000 in negotiating and closing the lease. Pharoah has determined that the collectibility of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Provincial Airlines Corp. has an incremental borrowing rate of 8%. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. (b) What classification…
One of the departments at Yolo Industries has entered into a 9 year lease for a piece of equipment. The annual payment under the lease will be $3,600, with payments being made at the beginning of each year. If the discount rate is 10%, the present value of the lease payments is closest to (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.) Multiple Choice $22,806 $10,07Y $22,105 $32,400
Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the end of each year. The equipment has a fair value of $175,000 and an estimated useful life of 10 years. The lease includes a guaranteed residual value of $10,000. In addition to the lease payments, Pepper will pay $5,000 per year for a maintenance agreement. Pepper can finance this lease with its bank at a 12% rate. The lessor’s implicit lease rate, known to the lessee, is 10%. The lessor and the lessee use ASC 842 guidelines for lease accounting. Present value interest factors are: 10% 12% PV factor of $1 for 10 periods 0.38554 0.32197 PV factor for ordinary annuity for 10 periods 6.14457 5.65022 Upon acquisition, the leased equipment will be valued on Pepper’s balance sheet at: Multiple Choice A. $144,475. B. $157,469. C. $175,000. D. $250,000.
American Food Services, Incorporated leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2024. The lease agreement for the $4.8 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton's implicit interest rate was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2024. 2. Prepare an amortization schedule for the four-year term of the lease. 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2024 and 2026. Complete this question by entering your answers in the tabs below. Req 1 Year Prepare an amortization schedule for the four-year…
Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018, it leased equipment with a cost of £480,000 to Silver Point Co. The 5-year lease calls for equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is £702,000, and the rate implicit in the lease is 8%. Present value of an ordinary annuity at 8% for 5 periods equals 4.00. Present value of an annuity due at 8% for 5 periods equals 4.50. Calculate the amount of the annual rental payment required.
American Food Services, Incorporated leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2024. The lease agreement for the $5.3 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton's implicit interest rate was 10%. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2024. 2. Prepare an amortization schedule for the four-year term of the lease. 3. & 4. Prepare the appropriate entries related to the lease on December 31, 2024 and 2026. S Complete this question by entering your answers in the tabs below. Req 1 Year Prepare an amortization schedule for the…
On January 1, 2020, Bacarra Company leased an asset for a term of six years. Annual rentals of P500,000 is payable every yearend. The cost of the leased asset is P2,100,000. Initial direct costs paid by Bacarra totaled P6,360. The asset will revert to Bacarra at the end of the lease term, when its residual value would amount to P100,000. Assume it is a direct finance lease with an implicit rate of 12% and the residual value is guaranteed, how much is the interest income for 2020?
Red Sun Rising Corporation has just signed a lease for its new manufacturing facility. The lease agreement calls for annual payments of $1,850,000 for 20 years with the first payment due today. If the interest rate is 3.55 percent, what is the value of this liability today?
Carla Vista Corporation, which uses ASPE, enters into a 6-year lease of equipment on September 1, 2023, that requires 6 annual payments of $25,500 each, beginning September 1, 2023. In addition, Carla Vista guarantees the lessor a residual value of $14,900 at lease end. The equipment has a useful life of seven years. Assume an interest rate of 12%. (Use tables below, a financial calculator, or Excel functions.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Prepare a schedule contrasting the journal entries prepared using a guaranteed residual value with those using an unguaranteed residual value. Include in your schedule entries on August 31, 2024, for the year-end accrual of interest in the lease obligation and the recording of annual depreciation expense using the straight-line method and assuming no residual value. (List all debit entries before credit entries. Credit account titles are automatically…

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