Wells Leasing Company signs an agreement on January 1. 2020, to lease equipment to Manchester Company. The following information relates to this agreement. The term of the non-cancellable lease is 6 years with no renewal option. 1. The equipment has an estimated economic life of 6 years. The cost of the asset to the lessor is $250,000. The fair value of the asset 2. at January 1, 2020, is $250,000. The asset will revert to the lessor at the end of the lease term, at which 3. time the asset is expected to have a residual value of $25000, none of which is guaranteed. The agreement requires equal annual rental payments, beginning on 4. January 1, 2020. |5. Collectability of the lease payments by Windsor is probable. A. Assuming the lessor desires a 6°o rate of return on its investment, calculate the amount of the annual rental payment required.

Wells Leasing Company signs an agreement on January 1. 2020, to lease equipment to Manchester Company. The following information relates to this agreement. The term of the non-cancellable lease is 6 years with no renewal option. 1. The equipment has an estimated economic life of 6 years. The cost of the asset to the lessor is $250,000. The fair value of the asset 2. at January 1, 2020, is $250,000. The asset will revert to the lessor at the end of the lease term, at which 3. time the asset is expected to have a residual value of $25000, none of which is guaranteed. The agreement requires equal annual rental payments, beginning on 4. January 1, 2020. |5. Collectability of the lease payments by Windsor is probable. A. Assuming the lessor desires a 6°o rate of return on its investment, calculate the amount of the annual rental payment required.

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

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…
Assume that IBM leased equipment that was carried at a cost of $173,000 to Oriole Company. The term of the lease is 7 years December 31, 2019, with equal rental payments of $30,767 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $172,999. The equipment has a useful life of 7 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $172,999. Prepare IBM’s December 31, 2020, entry to record the lease transaction with Oriole Company.
Assume that IBM leased equipment that was carried at a cost of $182,000 to Sunland Company. The term of the lease is 6 years December 31, 2019, with equal rental payments of $30,044 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $146,905. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable.Prepare IBM’s December 31, 2019, journal entries at commencement of the lease. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)Click here to view factor tables. Date Account Titles and Explanation Debit Credit December 31, 2019 enter an account title To record the lease enter a…
Sarasota Corporation entered into a lease agreement on January 1, 2020, to provide Ivanhoe Company with a piece of machinery. The terms of the lease agreement were as follows. 1. The lease is to be for 3 years with rental payments of $9,066 to be made at the beginning of each year. 2. The machinery has a fair value of $61,000, a book value of $46,800, an end-of-life salvage value of $0, and an economic life of 8 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value of $39,200, none of which is guaranteed. 4. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. 5. The implicit rate is 6%, which is known by Ivanhoe. 6. Collectibility of the payments is probable. 7. Assume that the lessor uses straight-line depreciation. (a) Evaluate the criteria for classification of the lease, and describe the nature of the…
Marin Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $451,000. The fair value of the asset at January 1, 2020, is $451,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,225, none of which is guaranteed. 4. The agreement requires equal annual rental payments, beginning on January 1, 2020. 5. Collectibility of the lease payments by Marin is probable. Assuming the lessor desires a 15% rate of return on its investment, prepare all of the journal entries for the lessor for 2020 and 2021 to record the lease agreement, the receipt of lease payments, and the recognition of revenue. Assume the lessor’s annual…
On January 1, 2021, Shadow Industries (lessor) leased equipment to Bone Co. (lessee) for a 5-year period under non-cancelable agreement, after which the leased asset will revert back to Shadow Industries. The equipment costs Shadow $660,000 and normally sells for $744,388. Equal payments under the lease are $160,000 and are due on December 31 of each year, with the first payment made on January 1, 2021. The equipment has a useful life of 6 years. The equipment’s residual value is $80,000 at the end of the lease term. The rate implicit in the lease used by the Shadow is 8%, Bone’s incremental borrowing rate is 10% and lessee is aware of lessor’s rate. What amount would Bone record for the right-of-use asset at inception of the agreement? A. $689,941. B. $716,838. C. $744,388. D. $800,000
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Tamarisk Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $74,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $3,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $24,716 to the lessor, beginning on January 1, 2020. 5. The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee. 6. Tamarisk uses the straight-line depreciation method for all equipment. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Prepare an amortization schedule that would be…
On July 1, 2023, Crane Corp., which uses IFRS, signs a 4-year, non-cancellable lease agreement to lease a equipment from Blossom Ltd. The following information concerns the lease agreement. 1. The equipment's fair value on July 1, 2023 is $259,000. نه 3. The agreement requires equal rental payments of $58,000.00 beginning on July 1, 2023. The equipment has an estimated economic life of 5 years, with an unguaranteed residual value of $93,000. Crane Corp. depreciates similar equipment using the straight-line method, with no residual value. 4. The lease is non-renewable. At the termination of the lease, the equipment reverts to Blossom. 5. 6. Crane's incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Crane Corp. The yearly rental payment includes $6,543.59 of executory costs related to insurance on the equipment. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.
Delray Leasing Company signs an agreement on January 1, 2025, to lease equipment to Sheridan Company. The following information relates to this agreement. Assume that the expected residual value at the end of the lease is $27,400, such that the payments are $22,227.36. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated economic life of 6 years. The fair value of the asset at January 1, 2025, is $105,300. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $27,400, none of which is guaranteed. The agreement requires equal annual rental payments of $22,227.36 to the lessor, beginning on January 1, 2025. The lessee's incremental borrowing rate is 6%. The lessor's implicit rate is 5% and is unknown to the lessee. Sheridan uses the straight-line depreciation method for all equipment. Date Account Titles and Explanation (To record the lease) (To…
On January 1, 2020, Parker Company signed an 8-year noncancelable, nonrenewable lease agreement to lease a storage building from Chili Equipment Company. The following information pertains to this lease agreement. (a) Parker will pay equal rental payments at the beginning of each year. (b) The fair value of the building on January 1, 2020 is $5,000,000; however, the book value to Chili is $4,125,000. (c) The building has an estimated economic life of 10 years, with no residual value. Parker depreciates similar buildings on the straight-line method. (d) At the termination of the lease, the title to the building will remain with the lessor, with no purchase option. (e) Parker’s incremental borrowing rate is 11% per year. Chili Equipment Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Parker Company. What type of lease would this be for the lessee?
On January 1, 2020, Nelson Co. leased a building to Wise Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,500,000 (unguaranteed). 2. The leased building has a cost of $4,000,000 and was purchased for cash on January 1, 2020. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $275,000 per year and are made at the beginning of the year. 5. Wise has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Wise. 6. Both the lessor and the lessee are on a calendar-year basis. Instructions a. Prepare the journal entries that Nelson should make in 2020. b. Prepare the journal entries that Wise should make in 2020. c. If Wise paid $30,000 to a real estate broker on January 1, 2020, as a fee for finding the lessor, what is the…
Dineshbhai