years, but the company requires it only for the first 5 years. It enters into an agreement with halak Ltd., for a lease rental for 24.5 lakhs p.o. payable in arrears and the implicit rate of interest is 15%. The chief accountant of Viraj Limited is not sure about the treatment of these lease rentals and seeks your advise.
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- Helpful plc is a finance company. It purchased computer equipment for R78 500 and leased it to Chatroom Ltd under a three year lease with three payments of R29 000 payable annually in advance. Chatroom Ltd agreed to pay R830, which represented the cost of setting up the lease. At the end of the first year, the balance sheet reported a balance of R55 363. The implicit rate of interest is 10%. What amount will be recognised in the Helpful plc income statement as interest in the second year? Select one: a. R5 536 b. R2 636 c. R830 d. R29 000Cassandra Company decides to enter the leasing business. The entity acquires a specialized packaging machine for P3,000,000 cash and leases it for a period of 6 years after which the machine is to be returned to Cassandra Company for disposition. The guaranteed residual value of the machine is P200,000. The lease term is arranged so that a return of 12% is earned by Cassandra Company. What is the annual rental payable in advance required to yield the desired return?Macinski Leasing leases a new machine to Sharrer SA. The machine has a cost of €70,000 and fair value of €95,000. Under the 3-year, non- cancelable contract, Sharrer 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, 2019. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentalsare payable on each December 31, beginning December 31, 2019.Instructions1. Prepare the journal entry at commencement of the lease for Macinski.2. Prepare the journal entry at commencement of the lease for Sharrer.3. Prepare the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Macinski's implicit rate (Sharrer's incremental borrowing rate is 9%), and (2) Sharrer incurs initial directs costs of €10,000.
- Evans Ltd leases their equipment from Mitchell Co. The typical arrangement that Evans have with Mitchell Co. is that the asset is typically leased for the length of its useful life. On 1 January 2021, a new machine was leased for which annual payments of £200,000 are made. The implicit interest rate is 10%. How would Evans treat this transaction in their financial statements of the current year? Provide calculations where you find relevant.Ludwick Steel SA, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2019. Annual rental payments of €40,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Ludwick's incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by the lessor. At the end of the lease, Ludwick has the option to buy the equipment for €5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no residual value. Ludwick uses the straight-line method of depreciation on similar owned equipment. Ludwick ends fiscal year at December 31. Present value of an annuity-due of 1 for 5 periods at 8% is 4.31213. Present value of an annuity-due of 1 for 5 periods at 6% is 4.46511. Present value of a single-sum of 1 for 5 periods at 8% is 0.68058. Instructions a. Prepare the journal entries that Ludwick should…ABC Company is the lessee and will lease an asset owned by XYZ Company. The semi-annual cash payments, required to be made by ABC, are $500,000. The lease goes for 5 years, and starts on January 1, 2021. Assume a capital lease. The periodic payments are due on June 30 and December 31 of each year. ABC uses an interest rate of 10%. What is the present value of the lease payments? $3,860,867 $1,895,393 $3,790,787 $5,000,000
- On January 1, 20x6, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for a piece of industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. Day knows that the lessor expects a 10% return on the lease. Day has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to Day, has guaranteed to pay Ward a residual value of P5,000 at the end of the lease. In Day's January 1, 20x6 balance sheet, the principal amount of the lease obligation was а. 63,374 b. 61,446 с. 58,112 d. 56,502LTK BHD entered into an agreement to lease a forklift from HEAVY MACHINERY BHD on 1 January 2020. The lease is for six-year which requires LTK to make annual payments of RM25,000, payable in advance on 1 January 2020 and subsequently on 31 December each year. At the end of the lease, the forklift will be returned to HEAVY MACHINERY BHD. The cost of machine is RM200,000 with the expected residual value of RM20,000 and useful life of 10 years. PRESENT VALUE TABLE i. Assuming the implicit rate is 8 percent, show the journal entry on 1 January 2020 for LTK BHD. ii. Show all the journal entries on 31 December 2020 related to the lease for LTK BHD.Cullumber Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Cullumber. The six-year lease requires payment of $171000 at the beginning of each year, including $25100 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessor’s implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Cullumber should record the leased asset at
- On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was P63,374 P61,446 P58,112 P56,502 show properly labeled solution.On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was A. P63,374 B. P61,446 C. P58,112 D. P56,502 Show properly labeled solution.On January 2, AS ACZ signed a 20x1 5-year lease agreement. According to this, AS ACZ must pay 5 equal payments (40,000 euros) at the end of each year. In addition, AS ACZ has guaranteed the residual value of the machine to be 25,000 euros. According to AS ACZ, the market value of the leased equipment is 26,000 euros at the end of the lease period. The economic life of the machine is 6 years. The interest rate is 8%. What are the liabilities at the beginning of the lease term?
