Vertical Container Corporation (VCC) signed a lease agreement on January 1, 2021, to lease new forklift equipment. The terms of the lease follow (Click the icon to view the terms of the lease.) Requirement a. Classify this lease as operating or finance for the lessee. Before completing the requirement, identify the present value of the lease payments. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, XXXXXX Round your final answer to the nearest whole dollar) The present value (PV) of the payments due under the lease is Classify this lease agreement as an operating or a finance lease. Begin by identifying any of the Group I criteria that VCC meets. (Select all that apply) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3. The lease term is for a major part of the economic life of the asset. 4. The present value of the sum of the lease payments and any residual value the lessee guarantees to pay (that is not otherwise included in the lease payment) is equal to substantially all of the asset's fair value. 5. The leased asset is of a specialized nature. 6. The lease does not meet any Group I lease criteria. This is a(n) Vlease for the lessee (VCC) because of the Group I criteria is (are) met. Requirement b. Prepare an amortization table for the lessee from 2021 through 2023 using the effective interest rate method of amortization. (Complete all input fields. Round all amounts to the nearest whole dollar. Enter a "0" for any zero balances.) More info, X Requirements - ⚫ The lease has a term of 10 years. There are no purchase or renewal options. VCC makes the annual lease payments of $85,000 on January 1 of each year, beginning on January 1, 2021. The fair value of the equipment at the commencement of the lease is $594,596. The equipment has an economic life of 15 years. The lease terms do not include a guaranteed residual value clause. The cost of the equipment to the lessor, Ronald Manufacturing Company, is $475,000. ⚫ VCC depreciates the forklifts it currently owns on a straight-line basis over the economic life of the property. • VCC's incremental borrowing rate is 9%, and the lessor's implicit rate in the lease is not known to VCC. The lessee paid $6,000 in initial direct costs related to this lease on the lease commencement date. The lessor is reasonably certain as to collection of the lease payments. a. Classify this lease as operating or finance for the lessee. b. Prepare an amortization table for the lessee from 2021 through 2023 using the effective interest rate method of amortization. c. Prepare all of VCC's journal entries for the first full year of the lease. d. Prepare the journal entries and the lease amortization schedule required for VCC in the first year of the lease if it classifies the lease as an operating lease. Hint: To record amounts that would be shown as "interest expense" on the amortization schedule, use the account name "Accrued Lease Payable". Print Done

Vertical Container Corporation (VCC) signed a lease agreement on January 1, 2021, to lease new forklift equipment. The terms of the lease follow (Click the icon to view the terms of the lease.) Requirement a. Classify this lease as operating or finance for the lessee. Before completing the requirement, identify the present value of the lease payments. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, XXXXXX Round your final answer to the nearest whole dollar) The present value (PV) of the payments due under the lease is Classify this lease agreement as an operating or a finance lease. Begin by identifying any of the Group I criteria that VCC meets. (Select all that apply) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3. The lease term is for a major part of the economic life of the asset. 4. The present value of the sum of the lease payments and any residual value the lessee guarantees to pay (that is not otherwise included in the lease payment) is equal to substantially all of the asset's fair value. 5. The leased asset is of a specialized nature. 6. The lease does not meet any Group I lease criteria. This is a(n) Vlease for the lessee (VCC) because of the Group I criteria is (are) met. Requirement b. Prepare an amortization table for the lessee from 2021 through 2023 using the effective interest rate method of amortization. (Complete all input fields. Round all amounts to the nearest whole dollar. Enter a "0" for any zero balances.) More info, X Requirements - ⚫ The lease has a term of 10 years. There are no purchase or renewal options. VCC makes the annual lease payments of $85,000 on January 1 of each year, beginning on January 1, 2021. The fair value of the equipment at the commencement of the lease is $594,596. The equipment has an economic life of 15 years. The lease terms do not include a guaranteed residual value clause. The cost of the equipment to the lessor, Ronald Manufacturing Company, is $475,000. ⚫ VCC depreciates the forklifts it currently owns on a straight-line basis over the economic life of the property. • VCC's incremental borrowing rate is 9%, and the lessor's implicit rate in the lease is not known to VCC. The lessee paid $6,000 in initial direct costs related to this lease on the lease commencement date. The lessor is reasonably certain as to collection of the lease payments. a. Classify this lease as operating or finance for the lessee. b. Prepare an amortization table for the lessee from 2021 through 2023 using the effective interest rate method of amortization. c. Prepare all of VCC's journal entries for the first full year of the lease. d. Prepare the journal entries and the lease amortization schedule required for VCC in the first year of the lease if it classifies the lease as an operating lease. Hint: To record amounts that would be shown as "interest expense" on the amortization schedule, use the account name "Accrued Lease Payable". Print Done

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 17MCQ: Which of the following statements regarding the new accounting rules, which take effect in 2019, for...

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