The following information pertains to an operating sale and leaseback of equipment by Cheerful Co. on December 31, 2019: Sales price P450, 000 Carrying amount 800,000 Monthly lease payment Fair market value 600,000 Estimated remaining life 10 years Lease term 5 years Annual rental P60, 000 Prevailing market rental for the same type of asset P75, 000 What amount of deferred loss on the sale should Cheerful report at December 31, 2020, assuming the prevailing market rate rent has yet to change?

The following information pertains to an operating sale and leaseback of equipment by Cheerful Co. on December 31, 2019: Sales price P450, 000 Carrying amount 800,000 Monthly lease payment Fair market value 600,000 Estimated remaining life 10 years Lease term 5 years Annual rental P60, 000 Prevailing market rental for the same type of asset P75, 000 What amount of deferred loss on the sale should Cheerful report at December 31, 2020, assuming the prevailing market rate rent has yet to change?

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 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...

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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.
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company 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 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
The following information pertains to an operating sale and leaseback of equipment by Cheerful Co. on December 31, 2019: Sales price P450, 000 Carrying amount 800,000 Monthly lease payment Fair market value 600,000 Estimated remaining life 10 years Lease term 5 years Annual rental P60, 000 Prevailing market rental for the same type of asset P75, 000 What amount of deferred loss on the sale should Cheerful report at December 31, 2020 assuming the prevailing market rate rent has yet to change? none 120,000 135,000 150,000
What amount should be recognized by Ripple as profit from sale for the year ended December 31, 2020? *a. 1,150,800b. 1,550,800c. 400,000d. 355,080
The following facts pertain to a non-cancelable lease agreement between Cullumber Leasing Company and Marin Company, a lessee. Commencement date May 1, 2020 Annual lease payment due at the beginning of each year, beginning with May 1, 2020 $15,138.16 Bargain purchase option price at end of lease term $4,000 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $50,000 Fair value of asset at May 1, 2020 $68,000 Lessor’s implicit rate 8 % Lessee’s incremental borrowing rate 8 % The collectibility of the lease payments by Cullumber is probable.Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Discuss the nature of this lease to Marin. The nature of this lease to Marin is a lease. eTextbook and Media List of Accounts Discuss…
The following facts pertain to a non-cancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee. Commencement date May 1, 2020 Annual lease payment due at the beginning of each year, beginning with May 1, 2020 $20,471.94 Bargain purchase option price at end of lease term $4,000 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $65,000 Fair value of asset at May 1, 2020 $91,000 Lessor’s implicit rate 8 % Lessee’s incremental borrowing rate 8 % Prepare a lease amortization schedule for Rode for the 5-year lease term
On December 31, 2019, Beam Company leased equipment to Forth Company for a four-year period ending December 31, 2023. The equipment cost Beam Company P365,760 and has an expected useful life of five years. Its normal sales price is P365,760. The lessee guarantees the residual value of P80,000. Lease payment is due every December 31 and Forth Company made the first payment on December 31, 2019. Beam Company’s implicit interest rate is 10%. 1. How much is the net investment in the lease at December 31, 2020? A. P276,537 B. P214,968 C. P304,191 D. P313,113 2. If the residual value is not guaranteed, how much net investment in the lease shall be recognized on December 31 A. P365,760 B. P356,760 C. P311,210 D. P311,120
On January 1, 2020, there was a modification on the lease contract of Amber Company resulting from the decrease in its scope. This resulted to a decreased amount of annual rentals payable every December 31 for the remaining three-year lease term in the amount of P180,000. The implicit rate on the lease on that date is 11%. As a result of the decrease in scope, the carrying amount of the right of use asset as of yearend 2019 which was P466,764 was reduced by P70,015. The carrying amounts of the right of use asset and finance lease liability as of yearend 2020 were P270,857 and P308,251, respectively. How much is the carrying amount of the finance lease liability as of yearend 2019?
Herald Company is a dealer in equipment. On January 1, 2020, an equipment was leased to another entity with the following provisions: Annual rental payable at the end of each year P1,500,000 Lease term and useful life of machinery 5 years Cost of equipment P4,000,000 Residual value – unguaranteed P500,000 Implicit interest rate 12% At the end of the lease term on December 31, 2024, the equipment will revert to the lessor, Herald Company. The perpetual inventory system is used. Herald Company incurred initial direct cost of P200,000 in finalizing the lease agreement. 1. What is the total financial revenue to be reported by Herald Company? 2. What is the interest revenue to be recognized by Herald for 2020? 3. Herald Company should report profit on the sale for 2020 at?
On January 1, 2019, TharnCorporation leased a machinery from TypeCompany on a five-year lease term at P150,000 annual rental payments, paid in advance. There is a bargain purchase option on December 31, 2023 of P240,000. The economic life of the equipment is 15 years. The interest rate implicit in the lease is 12%. How much is the depreciation expense to be recognized in 2019 related to the right-of-use asset? A.P39,451 B.P49,451 C.P118,354 D.P148,354 Which of the following is part of the entry or entries to be recorded at the end of lease term assuming that Tharnfails to exercise its bargain purchase option? A. Debit Loss on Unexercised Bargain Purchase Option, P245,516 B.Debit Lease Liability, P325,236 C.Debit Interest Payable, P25,736 D.Credit Right-of-Use Asset, P741,771