To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2021, for $990,000 and immediately leased the building back. The operating lease is for the final 10 years of the building's estimated 20- year remaining useful life. The building has a fair value of $990,000 and a book value of $745,000 (its original cost was $1 million). The rental payments of $290,000 are payable to the insurance company each December 31. The lease has an implicit rate of 9%. (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. & 2. Prepare the appropriate entries for National Distribution Center on January 1, 2021 and December 31, 2021, to record the sale- leaseback and necessary adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

To raise operating funds, National Distribution Center sold its office building to an insurance company on January 1, 2021, for $990,000 and immediately leased the building back. The operating lease is for the final 10 years of the building's estimated 20- year remaining useful life. The building has a fair value of $990,000 and a book value of $745,000 (its original cost was $1 million). The rental payments of $290,000 are payable to the insurance company each December 31. The lease has an implicit rate of 9%. (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. & 2. Prepare the appropriate entries for National Distribution Center on January 1, 2021 and December 31, 2021, to record the sale- leaseback and necessary adjustments. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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

Sunland Company self-insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1970000 per year. The company estimates that on average it will incur losses of $1610000 per year. During 2021, $705000 worth of losses were sustained. How much total expense and/or loss should be recognized by Sunland Company for 2021?
On January 1, 2018, the Yam Company leased a portion of the commercial building owned by Ying Commercial Company. The lease expires on December 31, 2025. Extensive work was done on the leased property for the construction of a restaurant considered as covid-19 safe. The improvements, costing P1,344,000, were completed on March 31, 2018. The estimated useful life of the improvement was 10 years. During 2021, because of favorable business operations in the area, Yam negotiated for the extension of the lease term by an additional 3 years, ending on December 31, 2028.Yam Company provides full year depreciation during the year of acquisition and no depreciation in the year of disposal. How much is the depreciation expense on the leasehold improvements for the year ended December 31, 2021?
On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $20,000 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $110,000 and were expected to have a useful life of eight years with no residual value. . Both firms record amortization and depreciation semiannually. 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 appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your…
Manji
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed? Group of answer choices 27.95% 14.72% 6.85% 12.23%
To raise operating funds, North American Courier Corporation sold its building on January 1, 2021, to an insurance company for $508,000 and immediately leased the building back. The lease is for a 10-year period ending December 31, 2030, at which time ownership of the building will revert to North American Courier. The building has a carrying amount of $470,000 (original cost $1,140,000). The lease requires North American to make payments of $89,908 to the insurance company each December 31. The building had a total original useful life of 30 years with no residual value and is being depreciated on a straight-line basis. The lease has an implicit rate of 12%. (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 North American (a) on January 1, 2021, to record the transaction and (b) on December 31, 2021, to record necessary adjustments.2. Show how North American’s…
Early In Its fiscal year ending December 31, 2021, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased by paying $200,000 Immediately and signing a noninterest-bearing note requiring the company to pay $600,000 on March 28, 2023. An Interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, Insurance, and other closing costs totaling $20,000 were paid at closing. At the end of April, the old building was demolished at a cost of $70,000, and an additional $50,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (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.) May 1 July 30 September 1 October 1…
Sunland Co. processes jam and sells it to the public. Sunland leases equipment used in its production processes from Splish Brothers, Inc. This year, Sunland leases a new piece of equipment from Splish Brothers. The lease term is 5 years and requires equal rental payments of $12,000 at the beginning of each year. In addition, there is a renewal option to allow Sunland to keep the equipment one extra year for a payment at the end of the fifth year of $12,000 (which Sunland is reasonably certain it will exercise). The equipment has a fair value at the commencement of the lease of $65,422 and an estimated useful life of 7 years. Splish Brothers set the annual rental to earn a rate of return of 4%, and this fact is known to Sunland. The lease does not transfer title, does not contain a bargain purchase option, and the equipment is not of a specialized nature. How should Sunland classify this lease?
Crane Leasing Company leases a new machine to Cullumber Corporation. The machine has a cost of $65,000 and fair value of $85,500. Under the 3-year, non-cancelable contract, Cullumber will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2025. Crane expects to earn an 8% return on its investment, and this implicit rate is known by Cullumber. The annual rentals are payable on each December 31, beginning December 31, 2025. Click here to view factor tables. (b) (c) Prepare the journal entry at commencement of the lease for Crane. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Part B) Prepare the journal entry at commencement of the lease for Sharrer. ( Credit account titles are automatically indented…
Needham Industries leased manufacturing equipment from Burlington Leasing on January 1, 2021. Needham has the option to renew the lease at the end of two years for an additional three years. Needham is subject to a $135,000 penalty after two years if it fails to renew the lease. Burlington Leasing purchased the equipment from Springfield Machines at a cost of $250,177. (EV of $1. PV of $1. EVA of S1. PVA of $1. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Inforation: Lease term Lease reneval option for an additional 2 years Quarterly lease payments 3 years (12 quarterly periods) $45,000 at Jan. 1, 2021 and at Mar 31, June 30, Sept. 30 and Dec. 31 thereafter. 5 years Econonic 1ife of asset Interest rate charged by the lessor Required: Prepare appropriate journal entries for Needham Industries from the beginning of the lease through March 31, 2021. Appropriate adjusting entries are made quarterly. (If no entry is required for a…
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…
Natick Industries leased high-tech instruments from Framingham Leasing on January 1, 2021. Natick has the option to renew the lease at the end of two years for an additional three years. Natick is subject to a $45,000 penalty after two years if it fails to renew the lease. Framingham Leasing purchased the equipment from Waltham Machines at a cost of $398,419. (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.) Related Information: Lease term 2 years (8 quarterly periods) Lease renewal option for an additional 3 years (12 quarterly periods) Quarterly lease payments $26,000 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. Economic life of asset 5 years Interest rate charged by the lessor 12% Prepare appropriate entries for Natick Industries from the beginning of the lease through March 31, 2021. Appropriate adjusting entries are made quarterly. (If no entry is…