Stellar Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 18,400 barrels of oil during the past year that sold at an average sales price of $68 per barrel. Total oil resources of this property are estimated to be 227,500 barrels. The lease provided for an outright payment of $614,250 to the lessor (owner) before drilling could be commenced and an annual rental of $33,120. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Stellar (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $36,400. From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Stellar Drilling Company. (Round answer to 2 decimal places, e.g. 4.89.) Total cost per barrel %24

Stellar Drilling Company has leased property on which oil has been discovered. The oil wells on this property produced 18,400 barrels of oil during the past year that sold at an average sales price of $68 per barrel. Total oil resources of this property are estimated to be 227,500 barrels. The lease provided for an outright payment of $614,250 to the lessor (owner) before drilling could be commenced and an annual rental of $33,120. A premium of 5% of the sales price of every barrel of oil removed is to be paid annually to the lessor. In addition, Stellar (lessee) is to clean up all the waste and debris from drilling and to bear the costs of reconditioning the land for farming when the wells are abandoned. The estimated fair value, at the time of the lease, of this clean-up and reconditioning is $36,400. From the provisions of the lease agreement, compute the cost per barrel for the past year, exclusive of operating costs, to Stellar Drilling Company. (Round answer to 2 decimal places, e.g. 4.89.) Total cost per barrel %24

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

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…
Metlock Company leases a building and land. The lease term is 8 years and the annual fixed payments are $840,000. The lease arrangement gives Metlock the right to purchase the building and land for $13,550,000 at the end of the lease. Based on an economic analysis of the lease at the commencement date, Metlock is reasonably certain that the fair value of the leased assets at the end of lease term will be much higher than $13,550,000. What are the total lease payments in this lease arrangement? Total lease payments Click if you would like to Show Work for this question: Open Show Work
Franklin Co. leased its manufactured equipment to Parker Inc. for a four-year term. Franklin Co. reported a book value of $110,000 for the equipment in its inventory account. The lease commenced on January 1 with the first annual payment of $37,000 due immediately. The equipment has a useful life of four years, an estimated fair value of $137,760, and no residual or salvage value. The implicit rate of the lease is 5% and collectibility of the lease payments from Parker is probable. Record Franklin's journal entries at the commencement of the sales-type lease for the (1) lease receivable and (2) receipt of the first payment. • Note: Round your answers to the nearest whole dollar. Date 1) Jan. 1 2) Jan. 1 Account Name > To derecognize asset and record investment in lease To record cash lease payment Dr. 0 0 0 0 0 0 Cr. O O O O O O
1. What amount should be recorded initially as cost of the right of use asset? 2. What is the annual depreciation of the right of use asset?
White Ltd leased a parcel of land for a period of 10 years. The lease payments required include a payment up-front of $248531, followed by another 9 payments of equal value at the end of every year up to the end of the ninth year. The implicit rate in the lease is 7 percent. What is the value of the right-of-use asset at the commencement of the lease?
Terms of a lease agreement and related facts were: a. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $5,408. b. The retail cash selling price of the leased asset was $425,000. Its useful life was three years with no residual value. c. The lease term is three years and the lessor paid $425,000 to acquire the asset. d. Annual lease payments at the beginning of each year were $160,000. e. Lessor's implicit rate when calculating annual rental payments was 13%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for the lessor to record the lease and related payments at its beginning, January 1, 2018. 2. Calculate the effective rate of interest revenue after adjusting the net investment by initial direct costs. 3. Record any entry(s) necessary at December 31, 2018, the fiscal year-end.…
A saltwater disposal system is added to Lease A's gathering system at a cost of $225,000. Assume the following acquisition costs and monthly operating expense fro the motn of May 2018 is $30,000. Case A: The disposal system serves several wells on two different leases. There are 7 wells on lease A and 10 wells on Lease B. Case B: the disposal system serves only the wells on Lease A. Required: Record the acquisition cost and the monthly expenses.
On 1/1/21, Sargento leased equipment under a two-year operating lease agreement from Great American Leasing, which typically finances equipment for other companies at an annual interest rate of 4%. The lease documentation calls for four rent payments of $15,500 each, payable semiannually on June 30 and December 31 each year. The equipment was acquired by Great Amerian Leasing at a cost of $101,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Required:1. Prepare appropriate journal entries recorded by Great American Leasing for the first year of the lease.
(Lessor Computations and Entries, Sales-Type Lease with Unguaranteed Residual Value) George Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to National Airlines for a period of 10 years. The normal selling price of the equipment is $278,072, and its unguaranteed residual value at the end of the lease term is estimated to be $20,000. National will pay annual payments of $40,000 at the beginning of each year and all maintenance, insurance, and taxes. George incurred costs of $180,000 in manufacturing the equipment and $4,000 in negotiating and closing the lease. George 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 10%.Instructions(a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.(1) Lease receivable.(2) Sales price.(3) Cost of sales.(b) Prepare a 10-year…
At the beginning of current year, Jimbie Company, as lessor, leased an equipment for ten years at an annual rental of P 1,200,000, payable by Buggy Company, the lessee, at the beginning of each year. The lease is appropriately accounted for as finance lease. The equipment had a cost of P 8,400,000 with an estimated life of 12 years and no residual value. The straight line depreciation is used. The implicit rate is 9%. What amount of interest income should be reported in the income statement for the current year? Show your solution.
S Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 10%. d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest…
Cullumber Co. purchases land and constructs a service station and car wash for a total of $487500. At January 2, 2021, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $560000 and immediately leased from the oil company by Cullumber. Fair value of the land at time of the sale was $56000. The lease is a 10-year, noncancelable lease. Cullumber uses straight-line depreciation for its other various business holdings. The economic life of the facility is 15 years with zero salvage value. Title to the facility and land will pass to Cullumber at termination of the lease. A partial amortization schedule for this lease is as follows: Payments Interest Amortization Balance Jan. 2, 2021 $560000 Dec. 31, 2021 $91137.42 $56000 $35137.42 524862.58 Dec. 31, 2022 91137.42 52486.26 38651.16 486211.42 Dec. 31, 2023 91137.42 48621.14 42516.28 443695.14 What is the…