Change in lease term; operating lease; lessor • LO15–4, LO15–6 Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. Universal earns interest under these arrangements at a 10% annual rate. Universal purchased an electronic typesetting machine on December 31, 2017, for $90,000 and then leased it to Desktop, Inc. a local publisher. The six-year operating lease term commenced January 1, 2018, and the lease contract specified annual payments of $8,000 beginning December 31, 2018, and on each December 31 through 2023. The machine’s estimated useful life is 15 years with no estimated residual value. The publisher had the option to terminate the lease after four years. At the beginning of the lease, there was no reason to believe the lease would be terminated. Required: 1. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of 2018. 2. At the beginning of 2019, there was a significant indication that Desktop’s economic incentive to terminate the lease had changed causing both companies to believe termination of the lease at the end of four years (three years remaining) is “reasonably certain.” Prepare any appropriate entries for Universal Leasing at January 1, 2019, to reflect the change in the lease term. 3. Prepare the appropriate entries pertaining to the lease for Universal Leasing at December 31, 2019.
Change in lease term; operating lease; lessor • LO15–4, LO15–6 Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. Universal earns interest under these arrangements at a 10% annual rate. Universal purchased an electronic typesetting machine on December 31, 2017, for $90,000 and then leased it to Desktop, Inc. a local publisher. The six-year operating lease term commenced January 1, 2018, and the lease contract specified annual payments of $8,000 beginning December 31, 2018, and on each December 31 through 2023. The machine’s estimated useful life is 15 years with no estimated residual value. The publisher had the option to terminate the lease after four years. At the beginning of the lease, there was no reason to believe the lease would be terminated. Required: 1. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of 2018. 2. At the beginning of 2019, there was a significant indication that Desktop’s economic incentive to terminate the lease had changed causing both companies to believe termination of the lease at the end of four years (three years remaining) is “reasonably certain.” Prepare any appropriate entries for Universal Leasing at January 1, 2019, to reflect the change in the lease term. 3. Prepare the appropriate entries pertaining to the lease for Universal Leasing at December 31, 2019.
Solution Summary: The author explains the operating lease, which allows the lessee to use the asset for a specified time period by charging rent without actual transfer of ownership.
Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. Universal earns interest under these arrangements at a 10% annual rate.
Universal purchased an electronic typesetting machine on December 31, 2017, for $90,000 and then leased it to Desktop, Inc. a local publisher. The six-year operating lease term commenced January 1, 2018, and the lease contract specified annual payments of $8,000 beginning December 31, 2018, and on each December 31 through 2023. The machine’s estimated useful life is 15 years with no estimated residual value.
The publisher had the option to terminate the lease after four years. At the beginning of the lease, there was no reason to believe the lease would be terminated.
Required:
1. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of 2018.
2. At the beginning of 2019, there was a significant indication that Desktop’s economic incentive to terminate the lease had changed causing both companies to believe termination of the lease at the end of four years (three years remaining) is “reasonably certain.” Prepare any appropriate entries for Universal Leasing at January 1, 2019, to reflect the change in the lease term.
3. Prepare the appropriate entries pertaining to the lease for Universal Leasing at December 31, 2019.
Repsola is a drilling company that operates an offshore Oilfield in Feeland. Five yearsago, Feeland had a major oil discovery and granted licenses to drill oil to reputable,experienced drilling companies. The licensing agreement requires the company toremove the oil rig at the end of production and restore the seabed. Ninety percent ofthe eventual costs of undertaking the work relate to the removal of the oil rig andrestoration of damage caused by building it and ten percent arise through theextraction of the oil. At the Statement of Financial Position (SOFP) date (December 312025), the rig has been constructed but no oil has been extractedOn January 1st 2023, Repsola obtained the license to construct an oil rig at a cost of$500 million. Two years later the oil rig was completed. The rig is expected to beremoved in 20 years from the date of acquisition. The estimated eventual cost is 100million. The company’s cost of capital is 10% and its year end is December 31st. Repsolauses…
Maharaj Garage & Car Supplies sells a variety of automobile cleaning gadgets including a variety of hand
vacuums. The business began the first quarter (January to March) of 2024 with 20 (Mash up Dirt) deep clean,
cordless vacuums at a total cost of $126,800.
During the quarter, the business completed the following transactions relating to the "Mash up Dirt" brand.
January 8
January 31
February 4
February 10
February 28
March 4
March 10
March 31
March 31
105 vacuums were purchased at a cost of $6,022 each. In addition, the business paid a freight
charge of $518 cash on each vacuum to have the inventory shipped from the point of purchase
to their warehouse.
The sales for January were 85 vacuums which yielded total sales revenue of $768,400. (25 of
these units were sold on account to Mandys Cleaning Supplies, a longstanding customer)
A new batch of 65 vacuums was purchased at a total cost of $449,800
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