Three different lease transactions are presented below for Cullumber Enterprises. Assume that all lease transactions start on January1, 2024. Cull umber does not receive title to the properties, either during the lease term or at the end of it. The yearly rental foreach of the leases is paid at the beginning of each year. Cullumber Enterprises prepares its financial statements using ASPE. Assumethat Cullumber Enterprises has purchased the vehicle for $96, 600 instead of leasing it and that the amount borrowed was $96,600at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. /List a/l debit entries before creditentries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. ff na entry is required,select "No Entry for the account titles and enter O for the amounts_ Record entries in the order displayed in the problem statement)

The objective of the question is to prepare the journal entries for Cullumber Enterprises for the…

Answered: Three different lease transactions are…

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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On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $96,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 5%. Winn also paid a $321,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $417,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $60,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 8%. Winn also paid a $120,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
Indigo Corporation manufactures drones. On December 31, 2019, it leased to Althaus Company a drone that had cost $144,000 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires five equal annual rentals of $48,800 payable each December 31, beginning December 31, 2019. An interest rate of 9% is implicit in the lease agreement. Collectibility of the rentals is not probable. Prepare any journal entry for Indigo on December 31, 2019. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit
On January 1, 2020, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $5,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $150,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Bensen set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. Instructions (Both the lessor and the lessee's accounting periods end on December 31.) a. Discuss the nature of this lease to Bensen and Flynn. b.…
On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 8 years. • The annual rentals are $39,200, payable at the beginning of each year. • The interest rate implicit in the lease is 11%. • Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026. • The cost of the equipment to the lessor is $145,500, and the fair value is approximately $223,900. • Ballieu incurs no material initial direct costs. • It is probable that Ballieu will collect the lease payments. • Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $39,200 discounted at…
Skysong enters into an agreement with Traveler Inc. to lease a car on December 31, 2019. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it is expected to have no residual value at the end of the lease term. 2. The fair value of the car was $14,100 at commencement of the lease. 3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2020. The first payment is to be of an amount of $5,148.50, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,519.36 and the third and final payment will be $5,795.30). 4. Skysong’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown. 5. Skysong uses straight-line depreciation for all similar cars. (a)Prepare Skysong’ journal…
On December 31, 2019, Shamrock Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Shamrock to make annual payments of $7,909 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Shamrock uses the straight-line method of depreciation for all of its plant assets. Shamrock’s incremental borrowing rate is 8%, and the lessor’s implicit rate is unknown. Prepare all necessary journal entries for Shamrock for this lease through December 31, 2020. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit
Scupper Farms, the lessee, and Tyrrell Equipment, the lessor, sign a lease agreement on January 1, 2019, that provides for Scupper to lease a cultivator from Tyrrell. The lease terms, provisions, and other related events are as follows: The lease is noncancelable and has a term of 6 years. The annual rentals are $55,000 payable at the beginning of each year. Scupper agrees to pay all executory costs directly to a third party, which are expected to be $1,100 annually, including property taxes of $500, insurance of $350, and maintenance of $250. These costs are paid each year on November 1. The cultivator has an estimated economic life of 6 years. Scupper guarantees a residual value of $60,000 at the end of 6 years. Scupper believes it is probable that it will pay $15,000 cash as a result of this guarantee. The interest rate implicit in the lease is 14%, which is known by Scupper. Scupper’s incremental borrowing rate is 15%, and it uses the sum-of-the-years’-digits method to record…
On January 1, 2021, National Insulation Corporation (NIC) leased equipment from United Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by NIC. Portions of the United Leasing's lease amortization schedule appear below: (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.) Jan. 1 2021 2021 2022 2023 2024 2025 2026 1. 2. WN 3. 4. 2038 2039 2040 2041 7 Payments 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 14,500 38,449 5. 6. Net investment Effective Decrease in Interest Balance 11,800 11,584 11,351 11,099 10,827 5,250 4,510 3,711 2,848 Lease term Asset's residual value Effective annual interest rate Lease payments for United Lease payments for NIC 7. 8. Right-of-use asset Required: 1. What is the lease term In years? 2. What is the asset's residual value expected at the end of the lease term?…
Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. 2. The cost of the equipment is $500,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time. 3. The equipment has a fair value of $500,000. 4. Ten-Care agrees to pay all executory costs directly to a third party. 5. The lease contains no renewal or bargain purchase option. 6. The interest rate implicit in the lease is 10%. 7. The initial direct costs are insignificant and assumed to be zero. 8. It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Required: 1. Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the…
Cullumber Company, a machinery dealer, leased a machine to Ivanhoe Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $29,169 at the beginning of each year. The first payment is received on January 1, 2025. Cullumber had purchased the machine during 2024 for $109,000. Collectibility of lease payments by Cullumber is probable. Cullumber set the annual rental to ensure a 636 rate of return. The machine has an economic life of 10 years with no residual value and reverts to Cullumber at the termination of the lease. Click here to view factor tables. (a) Your answer is correct. Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places eg. 5,275.) Amount of the lease receivable $ (b) eTextbook and Media List of Accounts Date 192,001 Prepare all necessary journal entries for Cullumber for 2025. (List all debit entries…

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