Skkrrt Company entered into a lease agreement for the use of a new equipment on January 1, 2020. The lease agreement requires an annual payment of P1,500,000 for five years starting December 31, 2020. Skkrrt guaranteed a residual value of P711,090 at the end of the contract. The equipment will revert to the lessor at the end of five years. The equipment has an economic life of 10 years. The implicit rate for this lease is 16% where the present value of 1 for five periods is 0.4761 and the present value of an ordinary annuity of 1 is 3.2743. What is the balance of lease liability on December 31, 2020?

Skkrrt Company entered into a lease agreement for the use of a new equipment on January 1, 2020. The lease agreement requires an annual payment of P1,500,000 for five years starting December 31, 2020. Skkrrt guaranteed a residual value of P711,090 at the end of the contract. The equipment will revert to the lessor at the end of five years. The equipment has an economic life of 10 years. The implicit rate for this lease is 16% where the present value of 1 for five periods is 0.4761 and the present value of an ordinary annuity of 1 is 3.2743. What is the balance of lease liability on December 31, 2020?

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 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...

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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?
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.
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.
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.
On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
Long Live Company entered into a lease agreement for the use of a new machine on January 1, 2020. The lease agreement requires an annual payment of P1,500,000 for five years starting December 31, 2020. Long Live guaranteed a residual value of P711,090 at the end of the contract. The machine will revert to the lessor at the end of five years. The machine has an economic life of 10 years. The implicit rate for this lease is 16% where the present value of 1 for five periods is 0.4761 and the present value of an ordinary annuity of 1 is 3.2743. What is the balance of lease liability on December 31, 2020?
The lessor company signs a sales-type lease agreement on January 1, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $63,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $44,000. The lessor expects to earn a return of 8% on its investment. What is the amount of sales the lessor will record on January 1, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 8%, 8 periods 1.85 0.54 10.64 5.75 6.21
The lessor company signs a lease agreement on December 31, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $87,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $42,000. The lessor expects to earn a return of 10% on its investment. The equipment has a useful economic life of 10 years. What is the amount of lease receivable the lessor will record on December 31, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 8 periods 2.14 0.47 11.44 5.33 5.87 10%, 10 periods 2.59 0.39 15.94 6.14 6.76
Novak Corporation leased equipment to Windsor, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $878 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 8 years, a fair value of $8,100, a book value of $6,100, and Novak expects a residual value of $5,600 at the end of the lease term. Novak set the lease payments with the intent of earning a 4% return, though Windsor is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare the entries for Novak for 2020.
On January 1, 2021, QuickStream Communications leased telephone equipment from Diglum, Inc. Digium's cash selling price for the equipment is $1,607604. The lease agreement specifies six annual payments of $380,000 beginning December 31, 2021, and at each December 31 thereafter through 2026. The six-year lease is equal to the estimated useful life of the equipment. The contract specifies that lease payments for each year will increase by the higher of (a) the increase in the Consumer Price Index for the preceding year or (b) 3%. The CPI at the beginning of the lease is 110. Diglum routinely leases equipment to other firms. The interest rate in these lease arrangements is 11%. (EV OLS1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of 5) (Use appropriate factor(s) from the tables provided.) Required: Prepare the appropriate journal entries for QuickStream to record the lease at its beginning date of January 1, 2021 (If no entry is required for a transaction/event, select "No…
Ayayai Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,151 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $9,900, a book value of $7,900, and Ayayai expects a residual value of $7,400 at the end of the lease term. Ayayai set the lease payments with the intent of earning a 4% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare all necessary journal entries for Kingbird in 2020
The lessor company signs a sales-type lease agreement on December 31, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 10 years, and yearly rental payment of $119,000 is required at the end of each year, beginning on December 31, 2020. The equipment has a cost of $181,000 to the lessor company. The agreement specifies that the unguaranteed residual value is $33,000. The lessor expects to earn a return of 8% on its investment. What is the amount of cost of goods sold the lessor will record on December 31, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 8%, 10 periods 2.16 0.46 14.49 6.71 7.25