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Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has an incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee

Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has an incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee

FINANCIAL ACCOUNTING
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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Wildhorse Company manufactures a check-in kiosk with an estimated economic life of 10 years and leases it to Sheffield Chicken for a period of 9 years. The normal selling price of the equipment is $172,124, and its unguaranteed residual value at the end of the lease term is estimated to be $26,200. Sheffield will pay annual payments of $20,800 at the beginning of each year. Wildhorse incurred costs of $141,100 in manufacturing the equipment and $2,400 in sales commissions in closing the lease. Wildhorse has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Sheffield Chicken has an incremental borrowing rate of 5%. The lessor's implicit rate is unknown to the lessee.

 

 

### Lease Amortization Schedule Example This example demonstrates how to prepare a 9-year lease amortization schedule. The schedule is prepared on an annuity-due basis and calculates the unguaranteed residual value (URV). Ensure all answers are rounded to 0 decimal places (e.g., 58,970). **Title:** SHEFFIELD CHICKEN (Lessee) Lease Amortization Schedule (Annuity-due basis and URV) **Column Headings:** 1. **Beginning of Year** 2. **Annual Lease Payment** 3. **Interest on Lease Liability** 4. **Reduction of Lease Liability** Each row represents a specific year within the 9-year lease term, including the initial present value (PV) at the beginning. **Rows:** - *Initial PV:* Corresponding entries are provided for the initial present value of the lease, which include the initial lease payment, interest on the lease liability, and the reduction of lease liability. - *Years 1 to 9:* Each year’s entries for the annual lease payment, interest accrued on lease liability, and the reduction of the lease liability are required. **Functional Requirements:** 1. **Annual Lease Payment:** Input the amount paid annually for the lease. 2. **Interest on Lease Liability:** Calculate the interest on the remaining balance of the lease liability. 3. **Reduction of Lease Liability:** Deduct the interest portion from the annual lease payment to determine the reduction in the lease liability for that year. This table serves as a structured template to manually compute and track the lease payments, interest, and liability reduction over the specified 9-year period.
Transcribed Image Text:### Lease Amortization Schedule Example This example demonstrates how to prepare a 9-year lease amortization schedule. The schedule is prepared on an annuity-due basis and calculates the unguaranteed residual value (URV). Ensure all answers are rounded to 0 decimal places (e.g., 58,970). **Title:** SHEFFIELD CHICKEN (Lessee) Lease Amortization Schedule (Annuity-due basis and URV) **Column Headings:** 1. **Beginning of Year** 2. **Annual Lease Payment** 3. **Interest on Lease Liability** 4. **Reduction of Lease Liability** Each row represents a specific year within the 9-year lease term, including the initial present value (PV) at the beginning. **Rows:** - *Initial PV:* Corresponding entries are provided for the initial present value of the lease, which include the initial lease payment, interest on the lease liability, and the reduction of lease liability. - *Years 1 to 9:* Each year’s entries for the annual lease payment, interest accrued on lease liability, and the reduction of the lease liability are required. **Functional Requirements:** 1. **Annual Lease Payment:** Input the amount paid annually for the lease. 2. **Interest on Lease Liability:** Calculate the interest on the remaining balance of the lease liability. 3. **Reduction of Lease Liability:** Deduct the interest portion from the annual lease payment to determine the reduction in the lease liability for that year. This table serves as a structured template to manually compute and track the lease payments, interest, and liability reduction over the specified 9-year period.
**Understanding Lease Liability** Lease liability represents the responsibility that a lessee has to make lease payments for the term of a lease agreement. It is a financial obligation recorded on the balance sheet, reflecting the present value of future lease payments. In the image provided, there is a section titled "Lease Liability" with several blank text boxes listed below it. The dollar sign ($) next to each box indicates that these spaces are designated for entering monetary amounts. Here is a detailed explanation of this section: --- **Lease Liability** | $ | | |---|---------| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | --- 1. The top-most box after the label "Lease Liability" appears blank, awaiting an entry to reflect a specific monetary value related to lease liability. 2. Several empty fields (represented by boxes with a dollar sign next to them) trend down the page, indicating places to input further monetary amounts related to the lease payments or components of the total lease liability. Understanding lease liability is crucial for accounting and financial reporting, as it ensures transparency regarding future financial commitments. Companies usually enter specific costs associated with their lease agreements in these fields, which help in accurately reflecting their financial obligations.
Transcribed Image Text:**Understanding Lease Liability** Lease liability represents the responsibility that a lessee has to make lease payments for the term of a lease agreement. It is a financial obligation recorded on the balance sheet, reflecting the present value of future lease payments. In the image provided, there is a section titled "Lease Liability" with several blank text boxes listed below it. The dollar sign ($) next to each box indicates that these spaces are designated for entering monetary amounts. Here is a detailed explanation of this section: --- **Lease Liability** | $ | | |---|---------| | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | --- 1. The top-most box after the label "Lease Liability" appears blank, awaiting an entry to reflect a specific monetary value related to lease liability. 2. Several empty fields (represented by boxes with a dollar sign next to them) trend down the page, indicating places to input further monetary amounts related to the lease payments or components of the total lease liability. Understanding lease liability is crucial for accounting and financial reporting, as it ensures transparency regarding future financial commitments. Companies usually enter specific costs associated with their lease agreements in these fields, which help in accurately reflecting their financial obligations.
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