Teal Mountain Leasing Company signs a lease agreement on January 1, 2025, to lease electronic equipment to Sandhill Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement. 1. 2. 3. 4. Sandhill has the option to purchase the equipment for $19,000 upon termination of the lease. It is not reasonably certain that Sandhill will exercise this option. The equipment has a cost of $190,000 and fair value of $238,500 to Teal Mountain Leasing. The useful economic life is 2 years, with a residual value of $19,000. Teal Mountain Leasing desires to earn a return of 5% on its investment. Collectibility of the payments by Teal Mountain Leasing is probable. Click here to view factor tables. (a) - Your answer is partially correct. Prepare the journal entries on the books of Teal Mountain Leasing to record the payments received under the lease and to recognize income for the years 2025 and 2026. (List all debit entries before credit entries. Credit account titles are automatically

Teal Mountain Leasing Company signs a lease agreement on January 1, 2025, to lease electronic equipment to Sandhill Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement. 1. 2. 3. 4. Sandhill has the option to purchase the equipment for $19,000 upon termination of the lease. It is not reasonably certain that Sandhill will exercise this option. The equipment has a cost of $190,000 and fair value of $238,500 to Teal Mountain Leasing. The useful economic life is 2 years, with a residual value of $19,000. Teal Mountain Leasing desires to earn a return of 5% on its investment. Collectibility of the payments by Teal Mountain Leasing is probable. Click here to view factor tables. (a) - Your answer is partially correct. Prepare the journal entries on the books of Teal Mountain Leasing to record the payments received under the lease and to recognize income for the years 2025 and 2026. (List all debit entries before credit entries. Credit account titles are automatically

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 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...

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Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
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.
Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line method
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.
Sage Hill Leasing Company signs a lease agreement on January 1, 2025, to lease electronic equipment to Oriole Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement. 1. 2. Oriole has the option to purchase the equipment for $22,500 upon termination of the lease. It is not reasonably certain that Oriole will exercise this option. The equipment has a cost of $250,000 and fair value of $273,000 to Sage Hill Leasing. The useful economic life is 2 years, with a residual value of $22,500. 3. 4. Sage Hill Leasing desires to earn a return of 5% on its investment. Collectibility of the payments by Sage Hill Leasing is probable. Click here to view factor tables. (a) Prepare the journal entries on the books of Sage Hill Leasing to record the payments received under the lease and to recognize income for the years 2025 and 2026. (List all debit entries before credit entries. Credit account…
Kingbird Leasing Company signs a lease agreement on January 1, 2025, to lease electronic equipment to Blossom Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement. 1. 2. Blossom has the option to purchase the equipment for $12,000 upon termination of the lease. It is not reasonably certain that Blossom will exercise this option. The equipment has a cost of $100,000 and fair value of $120,000 to Kingbird Leasing. The useful economic life is 2 years, with a residual value of $12,000. 3. Kingbird Leasing desires to earn a return of 6% on its investment. 4. Collectibility of the payments by Kingbird Leasing is probable. Click here to view factor tables. (a) Prepare the journal entries on the books of Kingbird Leasing to record the payments received under the lease and to recognize income for the years 2025 and 2026. (List all debit entries before credit entries. Credit account titles…
Shamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Pharoah Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Pharoah has the option to purchase the equipment for $23,000 upon termination of the lease. It is not reasonably certain that Pharoah will exercise this option. 2. The equipment has a cost of $260,000 and fair value of $290,000 to Shamrock Leasing. The useful economic life is 2 years, with a residual value of $23,000. 3. Shamrock Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Shamrock Leasing is probable. Prepare the journal entries on the books of Shamrock Leasing to reflect the payments received under the lease and to recognize income for the years 2020 and 2021. Assuming that Pharoah exercises its option to purchase the equipment on December 31,…
Shamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Pharoah Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Pharoah has the option to purchase the equipment for $23,000 upon termination of the lease. It is not reasonably certain that Pharoah will exercise this option. 2. The equipment has a cost of $260,000 and fair value of $290,000 to Shamrock Leasing. The useful economic life is 2 years, with a residual value of $23,000. 3. Shamrock Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Shamrock Leasing is probable. Click here to view factor tables. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf (a) Prepare the journal entries on the books of Shamrock Leasing to reflect the…
Marin Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Cullumber Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Cullumber has the option to purchase the equipment for $27,000 upon termination of the lease. It is not reasonably certain that Cullumber will exercise this option.2. The equipment has a cost of $340,000 and fair value of $396,500 to Marin Leasing. The useful economic life is 2 years, with a residual value of $27,000.3. Marin Leasing desires to earn a return of 5% on its investment.4. Collectibility of the payments by Marin Leasing is probable. Prepare the journal entries on the books of Marin Leasing to reflect the payments received under the lease and to recognize income for the years 2020 and 2021. Assuming that Cullumber exercises its option to purchase the equipment on December 31, 2021, prepare the journal…
Marin Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Cullumber Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. 2. 3. 4. Cullumber has the option to purchase the equipment for $27,000 upon termination of the lease. It is not reasonably certain that Cullumber will exercise this option. The equipment has a cost of $340,000 and fair value of $396,500 to Marin Leasing. The useful economic life is 2 years, with a residual value of $27,000. Marin Leasing desires to earn a return of 5% on its investment. Collectibility of the payments by Marin Leasing is probable.
1 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 | 2 22 23 24 25 25 27 28 25 30332 38 34 35 35 21 18 19 Date 20 26 29 31 33 36 37 38 (The $18,000 option to purchase does not count as a bargain purchase, the expected residual value at the end of the lease term is also $18,000.) 39 40 (a) Computation of annual payments: 1/1/20 12/31/20 12/31/21 12/31/21 Skysong Leasing Company (Lessor) Lease Amortization Schedule Interest on Lease Receivable Annual Lease Payment Account Titles Recovery of Lease Receivable Debit 1 2 Credit 3 5 6 7 8 9 Lease 10 Receivable 11 189,000 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 |33 34 35 36 37 38 39 40
Windsor Leasing Company signs a lease agreement on January 1, 2020, to lease warehouse equipment to Wildhorse Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Wildhorse has the option to purchase the equipment for $20,000 upon termination of the lease. It is not reasonably certain that Wildhorse will exercise this option. 2. The equipment has a cost of $163,000 and fair value of $187,800 to Windsor Leasing. The useful economic life is 2 years, with a residual value of $20,000. 3. Windsor Leasing desires to earn a return of 6% on its investment. 4. Collectibility of the payments by Windsor Leasing is probable. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf