Splish Brothers Inc. wishes to lease machinery to Sunland Company. Sunland wants the machinery for 4 years, although it has a usefullife of 10 years. The machinery has a fair value at the commencement of the lease of $56,000, and Splish Brothers expects themachinery to have a residual value at the end of the lease term of $26,000. However, Sunland does not guarantee any part of theresidual value. Sunland does expect that the residual value will be $54,000 instead of $26.000.What would be the amount of the annual rental payments Splish Brothers demands of Sunland, assuming each payment will be madeat the end of each year and Splish Brothers wishes to earn a rate of return on the lease of 6%? (For calculation purposes, use 5 decimalplaces as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.)Click here to view factor tables.Amount of equal annual lease payments $

Given data:Number of years = 4Useful Life = 10 yearsFair Value of Machinery at commencement of Lease…

Answered: Splish Brothers Inc. wishes to lease…

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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Rumsfeld Corporation leased a machine on December 31, 2018, for a three-year period. The lease agreement calls for annual payments in the amount of $17,500 on December 31 of each year beginning on December 31, 2018. Rumsfeld has the option to purchase the machine on December 31, 2021, for $21,500 when its fair value is expected to be $31,500. The machine's estimated useful life is expected to be five years with no residual value. The appropriate interest rate for this lease is 8%. n/i 1 period, 8% 2 periods, 8% 3 periods, 8% PV of $1 PV, ordinary annuity PV, annuity due 0.92593 0.92593 1.00000 0.85734 1.78326 1.92593 0.79383 2.57710 2.78326 Required: 1. Calculate the amount to be recorded as a right-of-use asset and the associated lease liability. 2. Prepare an amortization schedule for this lease. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the amount to be recorded as a right-of-use asset and the associated lease liability.…
Minnetonka Company leases an asset. Information regarding the lease (Minnetonka is the lessee): • Fair value of the asset: $400,000. • Useful life of the asset: 6 years with no salvage value. Lease term is 5 years. • Annual lease payments are $60,000 Implicit interest rate: 11%. • Minnetonka can purchase the asset at the end of the lease period for $50,000. How should the lessee classify this lease? A) Operating. B) Finance. C) Short term. D) Long term. O B O O OO
Oriole Ltd., a public company following IFRS, recently signed a lease for equipment from Costner Ltd. The lease term is 7 years and requires equal rental payments of $19,049 at the beginning of each year. The equipment has a fair value at the lease's inception of $104,500, an estimated useful life of 7 years, and no residual value. Oriole pays all executory costs directly to third parties. The appropriate interest rate is 9%. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Using tables, a financial calculator, or Excel functions, calculate the amount of the right-of-use asset and lease liability. Prepare the initial entry to reflect the signing of the lease agreement and the first payment under the lease. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account…
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed?
Marshall Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The equipment has a useful life of 8 years. The fair value of the equipment is $ 64,000 and the lessor expects a rate of return of 5% on the lease contract. Marshall Inc. expects the equipment to have a fair value of $24,000 at the end of 5 years; however, the lessee does not guarantee the residual amount. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Marshall Inc. charge in order to earn its expected rate of return on the contract? Note: Enter the answer in dollars and cents, rounded to the nearest penny. Note: Do not use a negative sign with your answer.
Morgan Leasing Company signs an agreement on January 1, 2025, to lease equipment to Cole Company. The following informationrelates to this agreement.The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6years.The cost of the asset to the lessor is $245,000. The fair value of the asset at January 1,2025 , is $245,000.The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of$24,335, none of which is guaranteed.The agreement requires equal annual rental payments, beginning on January 1, 2025.Collectibility of the lease payments by Morgan is probable.
Reynolds Construction (RC) needs a piece of equipment that costs $150,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What will RC report as an amortization expense at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What will RC report as the lease liability at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What will RC report as the right-of-use asset at Year 1? Do…
Crane, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $224152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4- year useful life and no salvage value. If Crane, Inc.'s incremental borrowing rate is 11% and the rate implicit in the lease (which is known by Crane, Inc.) is 9%, what is the amount recorded for the leased asset at the lease inception? 9%, 4 periods 11%, 4 periods O $695420 O$791546 O $771914 O $726190 PV Annuity Due 3.53129 3.44371 PV Ordinary Annuity 3.23972 3.10245 Attempts: 0 of 1 used Submit Answer
Macinski Leasing Company Leases a new machine to Sharrer Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3 year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3 year useful life and no residual value. The lease was signed on January 1, 2017. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2017. a) Discuss the nature of the lease agreement and the accounting method that each party to the lease should apply
Teal Mountain Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $38,000, and Teal Mountain expects the machinery to have a residual value at the end of the lease term of $27,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $36,000 instead of $27,000. What would be the amount of the annual rental payments Teal Mountain demands of Thiensville, assuming each payment will be made at the end of each year and Teal Mountain wishes to earn a rate of return on the lease of 5%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.) Click here to view factor tables. Amount of equal annual lease payments %24
Teal Mountain Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Teal Mountain wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,500 at the end of the lease term.If the fair value of the equipment at lease commencement is $60,000, what would be the amount of the annual rental payments Teal Mountain demands of MTBA, assuming each payment will be made at the beginning of each year and Teal Mountain wishes to earn a rate of return on the lease of 6%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.)
Crane Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $85,500. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has à 3-year useful life and no residual value. The lease was signed on January 1, 2020. Crane expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020. Click here to view factor tables. (b) Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Date /1/20 12/31/20 2/31/21 2/31/22 Rent Receipt/ Payment Interest Revenue/ Expense $ Reduction of Principal $ Receivable/Lia 1 SUPPORT

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