Technoid InC. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: • Lease payments: $2,466,754 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025. Fair value of the lease payments is $20 million. • Lease term: five years (10 semiannual payments). • No residual value; no purchase option. • Economic life.of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. What is tho in

Technoid InC. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: • Lease payments: $2,466,754 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025. Fair value of the lease payments is $20 million. • Lease term: five years (10 semiannual payments). • No residual value; no purchase option. • Economic life.of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. What is tho in

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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Rich Company uses lease as a means of selling its equipment. On July 1,2019, the company leased an equipment to Poor Company. The cost of the equipment to Rich Company was P 684,000. The fair market value ( which was the sales price) was P 792,236.54 at the time of the inception of the lease. Annual lease payments are P 135,000 and are payable in advance for 8 years. The equipment has an expected economic life of 10 years. At the end of the lease term , title to the equipment will pass to Poor Company. Implicit interest rate is 10%. What is the rich Company's total financial revenue pertaining to the lease?
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero. Fox agrees to pay all executory costs directly to a third party. 4. The interest rate implicit in the lease is 12%. 5. The initial direct costs are insignificant and assumed to be zero. 6. The collectability of the rentals is reasonably assured. Required: 2. 3. 1. Next Level Assuming that the lease is a sales-type lease from Berne's point of view, calculate the selling price and assume that this is also the fair value. 2. Prepare a table summarizing the lease receipts and interest income earned by Berne. 3. Prepare journal entries…
Grouper Dairy leases its milking equipment from Monty Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $32,700 due at the beginning of each year starting January 1, 2020. 2. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $246,978 and a cost of $274,000 on Monty Finance’s books. It also has an estimated economic life of 15 years and an expected residual value of $13,800, though Grouper Dairy has guaranteed a residual value of $21,600 to Monty Finance. 3. The lease contains no renewal options, and the equipment reverts to Monty Finance upon termination of the lease. The equipment is not of a specialized use. 4. Grouper Dairy’s incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Grouper Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable. Prepare the…
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia- Atlantic to make semiannual lease payments of $486,146 over a 4-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic's incremental borrowing rate is 12.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $2.7 million. (EV of $1. PV of $1, EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) at June 30, 2018. 2. What pretax amounts related to the lease would Builders report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would Builders report in its income statement for the year ended December 31, 2018? (For all requirements, enter your…
On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a seven-year period with an option to extend the lease for three years. Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $19,500 due on December 31 of each year, calculated by the lessor using a 6% interest rate. The agreement is considered an operating lease. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1.Prepare Rick's journal entry to record for the right-of-use asset and lease liability on January 1, 2024. 2.Prepare the journal entries to record interest and amortization on December 31, 2024.
On January 1, 2023, Precision Pumps leases nonspecialized pumping equipment to Mega Construction. The equipment is delivered on January 1. The lease term is 4 years with no renewal or purchase options, and title to the leased asset is retained by the lessor at the end of the lease term. The lease requires annual fixed rental payments of $8500 per year beginning on January 1, 2023, and then December 31 of each year starting on December 31, 2023. The fair value of the equipment is $40,430 and has a carrying amount on Precision's books of $27,492. The equipment has a remaining life of 8 years. The estimated residual value of the equipment is $14,700. The lessee does not guarantee the residual value, but Precision secured an unrelated third party to guarantee $14,700; collection of this guaranteed residual value and lease payments are reasonably certain. The rate implicit in the lease is 9%. There are no prepaid rentals, and neither party to the agreement pays initial direct costs.What is…
On January 1, 2023, Murray Manufacturing leased a building for use in its operations from Associated Realty. The 7-year, noncancellable lease requires annual lease payments of $22,000, beginning January 1, 2023, and at each December 31 thereafter through 2028.The lease payment includes costs related to property taxes of $2000. They also include payments for common area maintenance. The observable standalone price for the lease (including the property taxes) is $20,000 and the observable standalone price for the common area maintenance is $4000.In addition, Murray agrees to pay insurance on the building. Murray pays the insurance each year when it receives an invoice from Associated Realty for the insurance amount. On December 15, 2023, Murray was billed and paid $2500 for this insurance. Murray does not make the election to account for each separate lease component, along with its associated nonlease components, as a single lease component.The lease agreement does not transfer…
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. . The lease agreement specified annual payments of $34,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. . The company had the option to purchase the machine on December 30, 2026, for $43,000 when its fair value was expected to be $58,000, a sufficient difference that exercise seems reasonably certain. . The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 12%. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease llability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare…
On January 1, 2021, QuickStream Communications leased telephone equipment from Digium, Inc. Digium's cash selling price for the equipment is $2,218,982. The lease agreement specifies six annual payments of $480,000 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 150. Digium routinely leases equipment to other firms. The interest rate in these lease arrangements is 8%. ( EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) (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…
On January 1, 2018, QuickStream Communications leased telephone equipment from Digium, Inc. Digium's cash selling price for the equipment is $2,218,982. The lease agreement specifies six annual payments of $480,000 beginning December 31, 2018, and at each December 31 thereafter through 2023. 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 and (b) 3 percent. The CPI at the beginning of the lease is 150. Digium routinely leases equipment to other firms. The interest rate in these lease arrangements is 8%. Prepare the appropriate journal entries for QuickStream to record the lease at its beginning date of January 1, 2018.
On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value of the equipment is $3 million. (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. Determine the present value of the lease payments at June 30, 2021 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2021? 3. What pretax amounts related to the lease would…
On January 1, 2021, Packard Corporation leased equipment to Hewlitt Company. The lease term is 9 years. The first payment of $458,000 was made on January 1, 2021. Remaining payments are made on December 31 each year, beginning with December 31, 2021. The equipment cost Packard Corporation $2,705,847. The present value of the lease payments is $2,733,179. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 12%, what will be the balance reported as a liability by Hewlitt in the December 31, 2022, balance sheet? (Round your final answer to nearest dollar.) Multiple Choce $1,883,024. $2.275,179. $1,613,024. $2.090,200.