Smith, the lessee, signs an 8-year lease agreement of a floor of a building on December 31, 2020, that requires annual payments of $70,000, beginning immediately. The residual value is guaranteed to the lessor of $50,000 at the end of the lease term. Smith estimates that the residual will have a value of $30,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interest of 7%. Record Smith's journal entries on December 31, 2020, assuming that the lease is properly classified as a finance lease. • Note: Round your answers to the nearest whole dollar. Date Account Name Dec. 31, 2020 Dec. 31, 2020 To record asset and liability Dr. Cr. Answer Answer Answer Answer Answer Answer

Smith, the lessee, signs an 8-year lease agreement of a floor of a building on December 31, 2020, that requires annual payments of $70,000, beginning immediately. The residual value is guaranteed to the lessor of $50,000 at the end of the lease term. Smith estimates that the residual will have a value of $30,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interest of 7%. Record Smith's journal entries on December 31, 2020, assuming that the lease is properly classified as a finance lease. • Note: Round your answers to the nearest whole dollar. Date Account Name Dec. 31, 2020 Dec. 31, 2020 To record asset and liability Dr. Cr. Answer Answer Answer Answer Answer Answer

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Smith, the lessee, signs an eight-year lease agreement on December 31 for the floor of a building that requires annual payments of $70,000, beginning immediately. The residual value of $50,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual value of $30,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interest of 7%. rate of interest of 7% Prenare the leccor's inurnal entries on December 31 to record the (1) leace receivable and (2) receint of the first navment assuming that the lease is properly classified as a sales-type lease. The carrying value of the equipment is $450,000 at the commencement of the lease. N Note: Round your answers to the nearest whole dollar. = Nare' koung your answers in the nearest wanie nnuar Date TIDEL. SI 1) Dec. 31 2) Dec. 31 Account Name To derecognize asset and record investment in lease To record receipt of lease payment ======== Dr. Cr.
Smith, the lessee, signs an eight-year lease agreement on December 31 for the floor of a building that requires annual payments of $280,000, beginning immediately. The residual value of $200,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual value of $120,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interest of 7%. Prepare the lessor's journal entries on December 31 to record the (1) lease receivable and (2) receipt of the first payment, assuming that the lease is properly classified as a sales-type lease. The carrying value of the equipment is $1,800,000 at the commencement of the lease. Note: Round your answers to the nearest whole dollar. Date 1) Dec. 31 Account Name: Dr. Cr. 0 0 0 0 0 0 0 0 To derecognize asset and record investment in lease 2) Dec. 31 0 0 00 To record receipt of lease payment
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 are $39,200, payable at the beginning of each year. • The interest rate implicit in the lease is 11%. • 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 lessor is $145,500, and the fair value is approximately $223,900. • 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 $39,200 discounted at…
Scupper Farms, the lessee, and Tyrrell Equipment, the lessor, sign a lease agreement on January 1, 2019, that provides for Scupper to lease a cultivator from Tyrrell. The lease terms, provisions, and other related events are as follows: The lease is noncancelable and has a term of 6 years. The annual rentals are $55,000 payable at the beginning of each year. Scupper agrees to pay all executory costs directly to a third party, which are expected to be $1,100 annually, including property taxes of $500, insurance of $350, and maintenance of $250. These costs are paid each year on November 1. The cultivator has an estimated economic life of 6 years. Scupper guarantees a residual value of $60,000 at the end of 6 years. Scupper believes it is probable that it will pay $15,000 cash as a result of this guarantee. The interest rate implicit in the lease is 14%, which is known by Scupper. Scupper’s incremental borrowing rate is 15%, and it uses the sum-of-the-years’-digits method to record…
On January 1, 2020, a lessee leased an office space with 2 floors, for P1,000,000 payable every January 1, starting next year. The lease term was 3 years, while the useful life of the office space was 4 years. The lessee paid P100,000 as lease bonus. The lessor also reimbursed P30,000 to the lessee. The implicit interest rate is 8% On January 1,2022, due to financial difficulties, the lessee and the lessor agreed to modify the lease as follows: - Only 1 floor will be rented. -The annual lease payments will be reduced to P400,000 -The lease term will be extended for 2 more years -The incremental borrowing rate at this date is 10% QUESTION 1: How much is the interest expense for 2021? QUESTION 2: How much is the gain or loss on partial termination as of date of modification, if any?
Monty Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $41,100 each, beginning December 31, 2019. In addition, Monty guarantees the lessor a residual value of $18,400 at the end of the lease. However, Monty believes it is probable that the expected residual value at the end of the lease term will be $9,200. The equipment has a useful life of 7 years.Prepare Montys' December 31, 2019, journal entries assuming the implicit rate of the lease is 10% and this is known to Monty. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)Click here to view factor tables. Date Account Titles and Explanation Debit Credit December 31, 2019 (To record the lease liability)…
Monty Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $41,100 each, beginning December 31, 2019. In addition, Monty guarantees the lessor a residual value of $18,400 at the end of the lease. However, Monty believes it is probable that the expected residual value at the end of the lease term will be $9,200. The equipment has a useful life of 7 years.Prepare Montys' December 31, 2019, journal entries assuming the implicit rate of the lease is 10% and this is known to Monty. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)Click here to view factor tables. Date Enter Account Titles Debit Credit December 31, 2019 1- 2- (To record the lease liability) December 31, 2019…
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?
Oriole Corporation enters into a 5-year lease of equipment on December 31, 2024, which requires 5 annual payments of $36,200 each, beginning December 31, 2024. In addition, Oriole guarantees the lessor a residual value of $20,300 at the end of the lease. However, Oriole believes it is probable that the expected residual value at the end of the lease term will be $10,300. The equipment has a useful life of 5 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $120,000. Prepare Lost Ark's 2024 and 2025 journal entries, assuming the implicit rate of the lease is 10% and this is known to Oriole. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. For…
Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $20,800 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following: The fair value of the equipment is $145,000. The applicable discount rate is an 8 percent annual rate. The economic life of the asset is 10 years. Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. The asset is a standard piece of equipment. a. Is the lease an operating lease or a financing lease? multiple choice Operating lease Financing lease b. What will be the lease expense shown on the income statement at the end of year 1? c. What will…
On January 1 of Year 1, Wayne Inc. signed an eight-year lease for office space for $48,000 annually due each January 1, with the first payment due immediately. Wayne has the option to renew the lease for an additional four-year period on or before January 1 of Year 9, at market lease rates at the time of renewal. The remaining economic life of the office is 30 years. Wayne Inc. is not aware of the implicit rate of the lease but has an incremental borrowing rate of 7%. Wayne Inc. paid $2,000 on January 1 of Year 1 for initial direct costs. Required a. How would Wayne Inc. classify the lease? ◆