Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 15, Problem 15.15BE
Guarantee d residual value
• LO15–6
On January 1, Garcia Supply leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Negotiations led to Garcia guaranteeing a $36,000 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $35,000. What is the amount to be added to the right-of-use asset and lease liability under the residual value guarantee?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
M1
Problem 3
On January 1, 2022, Grab Services, Inc. leased delivery trucks from Henri Industries.
The lease agreement for the P3,000,000 (fair value and present value of the lease
payments) delivery trucks specified four equal payments at the end of each year. The
useful life of the delivery trucks was expected to be 8 years with no residual value.
The implicit rate on the lease was 10%.
27. Determine the annual lease payment to be made by Grab Services?
Problem 3
On January 1, 2020, Berto Company leased a machinery with an estimated useful life of 8 years.
The contract is a six-year noncancelable lease with a 10% implicit interest rate.
PV of an annuity due of 1 at 10% for six periods
4.7908
PV of 1 at 10% for six periods
0.5645
The lease contains neither a transfer of title to the lessee nor a purchase option.
The lease requires annual payments of P500,000 beginning January 1, 2020.
The entity had a residual value guarantee of P400,000 when the machinery is returned to the lessor
upon the lease expiration.
Required:
1. Prepare a table of amortization of the lease liability and interest expense.
2. Prepare journal entries for 2020 and 2021.
3. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume
the fair value of the asset is P450,000.
4. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume
the fair value of the asset is P300,000.
Chapter 15 Solutions
Intermediate Accounting
Ch. 15 - Prob. 15.1QCh. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - A lessee should classify a lease transaction as a...Ch. 15 - Lukawitz Industries leased non-specialized...Ch. 15 - In accounting for a finance lease/sales-type...Ch. 15 - What is selling profit on a sales-type lease? How...Ch. 15 - At the beginning of an operating lease, the lessee...Ch. 15 - At the beginning of an operating lease, the lessor...Ch. 15 - In accounting for an operating lease, how are the...
Ch. 15 - Briefly describe the conceptual basis for asset...Ch. 15 - In a financing lease, front loading of lease...Ch. 15 - The discount rate influences virtually every...Ch. 15 - A lease that has a lease term (including any...Ch. 15 - A lease might specify that lease payments may be...Ch. 15 - What is a purchase option? How does it affect...Ch. 15 - A six-year lease can be renewed for two additional...Ch. 15 - Culinary Creations leased kitchen equipment under...Ch. 15 - What situations cause us to remeasure a lease...Ch. 15 - Prob. 15.20QCh. 15 - Compare the way a purchase option that is...Ch. 15 - What nonlease costs might be included as part of...Ch. 15 - The lessors initial direct costs often are...Ch. 15 - When are initial direct costs recognized in an...Ch. 15 - Prob. 15.25QCh. 15 - Prob. 15.26QCh. 15 - Prob. 15.27QCh. 15 - When a company sells an asset and simultaneously...Ch. 15 - Prob. 15.29QCh. 15 - Lease classification LO151 (Note: Brief Exercises...Ch. 15 - Lease classification LO151, LO152 Corinth Co....Ch. 15 - Lessee and lessor; calculate interest;...Ch. 15 - Finance lease; lessee; balance sheet effects ...Ch. 15 - Finance lease; lessee; income statement effects ...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Prob. 15.7BECh. 15 - Operating lease LO154 (Note: Brief Exercises 8...Ch. 15 - Operating lease LO154 At the beginning of its...Ch. 15 - Short-term lease LO155 King Cones leased ice...Ch. 15 - Uncertain lease term LO156 Java Hut leased a...Ch. 15 - Uncertain lease payments LO156 On January 1,...Ch. 15 - Purchase option; lessor; sales-type lease LO152,...Ch. 15 - Residual value; sales-type lease LO152, LO153,...Ch. 15 - Guarantee d residual value LO156 On January 1,...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Nonlease payments LO152, LO157 On January 1,...Ch. 15 - Lease classification LO151 Each of the four...Ch. 15 - Finance lease; calculate lease payments LO152...Ch. 15 - Finance lease; lessee; balance sheet and income...Ch. 15 - Prob. 15.4ECh. 15 - Sales-type lease; lessor; balance sheet and income...Ch. 15 - Finance lease; lessee LO152 (Note: Exercises 6,...Ch. 15 - Sales-type lease with no selling profit; lessor ...Ch. 15 - Sales-type lease with selling profit; lessor;...Ch. 15 - Prob. 15.9ECh. 15 - Lessor calculation of annual lease payments;...Ch. 15 - Lessee and lessor; sales-type lease with selling...Ch. 15 - Lessee; finance lease; effect on financial...Ch. 15 - Lessee; operating lease; effect on financial...Ch. 15 - Lessor; operating lease; effect on financial...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Lessee; operating lease LO154 Grichuk Power...Ch. 15 - Lessee a nd lessor; operating lease LO154 On...Ch. 15 - Short-term lease LO155 Chance Enterprises leased...Ch. 15 - Lessee; renewal option LO152, LO156 Natick...Ch. 15 - Variable lease payments LO152, LO156 On January...Ch. 15 - Lessee; variable lease payments LO152, LO156 On...Ch. 15 - Lessee; variable lease payments LO152, LO156 On...Ch. 15 - Lessee; renewal options LO152, LO156 On January...Ch. 15 - Calculation of annual lease payments; residual...Ch. 15 - Lessor; sales-type lease; residual value effect on...Ch. 15 - Lease concepts; finance/sales-type leases;...Ch. 15 - Lessee; lessee guaranteed residual value LO152,...Ch. 15 - Calculation of annual lease payments; purchase...Ch. 15 - Finance lease; purchase options; lessee LO152,...Ch. 15 - Purchase option; lessor; sales-type lease; no...Ch. 15 - Nonlease payments; lessor and lessee LO152, LO157...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lessors initial direct costs; operating lease ...Ch. 15 - Prob. 15.35ECh. 15 - Prob. 15.36ECh. 15 - Prob. 15.37ECh. 15 - Sale-leaseback Appendix 15 To raise operating...Ch. 15 - Sale-leaseback; operating lease Appendix 15 To...Ch. 15 - Prob. 15.1PCh. 15 - Finance lease LO152 At the beginning of 2018, VHF...Ch. 15 - Lease amortization schedule LO152 On January 1,...Ch. 15 - Finance /sales-type lease; lessee and lessor ...Ch. 15 - Lessee; operating lease; advance payment;...Ch. 15 - Operating lease; scheduled rent increases LO154...Ch. 15 - Lease amortization schedule LO152, LO156 On...Ch. 15 - Reassessment of lease term LO152, LO154, LO156 On...Ch. 15 - Lease concepts; sales-type leases; guaranteed and...Ch. 15 - Prob. 15.10PCh. 15 - Change in lease term; operating lease; lessor ...Ch. 15 - Lessee; renewal option LO152, LO156 High Time...Ch. 15 - Lessee and lessor; lessee guaranteed residual...Ch. 15 - Lessee and lessor; lessor; sales-type lease with...Ch. 15 - Nonlease payments; lessor and lessee LO152, LO157...Ch. 15 - Lessors initial direct costs; operating and...Ch. 15 - Nonlease costs; lessor and lessee LO152, LO157...Ch. 15 - Lessee-guaranteed residual value; unguaranteed...Ch. 15 - Initial direct costs; sales-type lease LO152,...Ch. 15 - Initial dire ct costs; sales-type lease with a...Ch. 15 - Guaranteed residual value; sales-type lease ...Ch. 15 - Unguaranteed residual value; nonlease payments;...Ch. 15 - Purchase option reasonably certain to be exercised...Ch. 15 - Lessee and lessor; lessee guaranteed residual...Ch. 15 - Prob. 15.25PCh. 15 - Prob. 15.26PCh. 15 - Modification of a lease LO152, LO153, LO156 On...Ch. 15 - Finance lease; lessee; financial statement effects...Ch. 15 - Prob. 15.29PCh. 15 - Sales-type lease; lessor; financial statement...Ch. 15 - Prob. 15.31PCh. 15 - Research Case 151 FASB codification; locate and...Ch. 15 - Ethics Case 153 Leasehold improvements LO153...Ch. 15 - Analysis Case 154 Lease concepts; Walmart LO151...Ch. 15 - Communication Case 155 Wheres the gain? Appendix...Ch. 15 - Prob. 15.7BYPCh. 15 - Prob. 1CCTCCh. 15 - Prob. 1CCIFRS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Please answerarrow_forwardChapter 15 Homework Seved On January 1, 2021, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to ean NRC a 12% rate of return for providing long-term financing. The lease agreement specified the following: a. Ten annual payments of $55,000 beginning January 1, 2021, the beginning of the lease and each December 31 thereafter through 2029. b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $316,412. c The lease qualifies as a finance lease/sales-type lease. d. A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $5,000 per year are specified, beginning January 1, 2021. NRC was to pay this cost as incurred, but lease payments refiect this expenditure. e. A partial amortization schedule, appropriate for both the lessee'and lessor, follows: Wnces (EV of $1. PV.of $1 EVA of $1. PVA of $1. EVAD of…arrow_forwardProblem 4On January 2, 2023, Fields Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5 years and a fair value of $2,000,000. Fields has an incremental borrowing rate of 8% and Wilson’s implicit rate is 6%. Fields uses the straight-line depreciation method to depreciate assets. Fields will make annual lease payments of $431,182 on January 2 of each year (with the first payment due at the beginning of the lease) The lease agreement includes a guarantee that Fields will take over ownership of the equipment from Wilson for a final payment of $100,000. Both companies adhere to IFRS. Both company have a December 31 year end. Fields is aware of the implicit rate in the lease.Instructionsa) Present the journal entries that Fields Inc. would record during the first year of the equipment lease. Round to the nearest dollar. (January 2, 2023 through to January 2, 2024)b) Prepare the journal entries that Wilson Ltd. would record in…arrow_forward
- 10arrow_forward1 5 points On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from Builders, Incorporated The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $880,440 over a 3-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 8.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $4.3 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) on June 30, 2024. 2. What amount related to the lease would Builders report in its balance sheet on December 31, 2024 (ignore taxes)? 3. What line item amounts related to the lease would Builders report in its income statement for the…arrow_forwardSh16arrow_forward
- Hi expart give correct answerarrow_forwardProblem 7 Aespa Company leased equipment from Naevis Company on July 1, 2021 for eight-year period expiring June 30, 2029. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest contemplated by Aespa and Naevis is 10%. The cash selling price of the equipment is P3,520,000 and the carrying amount is P2,800,000. The lease Is appropriately recorded as a sales type lease. 1. What amount of Gross Income on sale should be recorded for the year? a. 600,000 b. 720,000 c. 360,000 d. 300,000 2. What amount of interest revenue should be recorded for the year ended December 31, 2021? a. 292,000 b. 146,000 c. 352,000 d. 176,000arrow_forwardProblem 10- 10 Troy Company prepared the following amortization schedule for the lease of a machine from another entity. The machine has an economic life of six years. The lease agreement requires four annual payments of P330,000, including executory costs of P30,000, and the machine will be retured to the lessor at the end of the lease term. Minimum lease Interest Reduction Balance of payment Expense Liability Liablity 1/1/2020 985,150 12/31/2020 300,000 98,515 201,485 783,665 12/31/2021 300,000 78,366 221,634 562,031 12/31/2022…arrow_forward
- Problem 4 On January 1, 2021, Twice Company entered into a lease agreement with the following: Floor space Annual rental payable at the end of each year Implicit rate in the lease 1,500 square meters 200,000 12% 12 years 6.1944 Lease term Present value of an ordinary annuity at 12% for 12 periods On January 1, 2024, the lessee and the lessor agreed to amend the original terms of the lease with the following information: Additional floor space Increase in rental payable at the end of each year Implicit rate in lease Present value of an ordinary annuity of 1 at 10% for 9 periods 2,000 square meters 300,000 10% 5.759 1. What amount should be reported as lease liability on January 1, 20217 2. What amount should be reported as additional lease liability on January 1, 2024? 3. What amount should be reported as total interest expense for 20247arrow_forwardProblem 2 ZTech Company sells audio systems. It leases to Marina sands Company on January 1, 20x4 an audio equipment with carrying value of P 9,000,000 under the following terms: Guaranteed residual value of P 2,000,000 at the end of the lease terms of 5 years. Periodic payment every January 1 and July 1 of P 1,328,622 starts on January 1, 20x4; Lessor’s annual implicit rate, which is known by Marina Sands is 10. Ztech incurs commission and other costs related to the lease amounting to P 10,000. Required: How much total profit should Ztech recognize for the year ended December 31, 20x4? How much interest expense shall Marina Sands recognize for the year ended December 31, 20x4? What amount shall Marina Sands report for the equipment at December 31, 20x5? What amount of interest revenue should Ztech report for the year ended December 31, 20x5? What amount of financial asset shall Ztech report at December 31, 20x4?arrow_forwardProblem 15-27 (Static) Finance lease; lessee; financial statement effects [LO15-2, 15-8] Werner Chemical, Incorporated, leased a protein analyzer on September 30, 2024. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,548, payable each September 30, December 31, March 31, and June 30, with the first payment on September 30, 2024. Werner's incremental borrowing rate is 12%. Amortization is recorded on a straight-line basis at the end of each fiscal year. The useful life of the equipment is five years. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the present value of the lease payments on September 30, 2024. 2. What pretax amounts related to the lease would Werner report in its balance sheet on December 31, 2024? 3. What pretax amounts related to the lease would Werner report in its income statement for the year ended December 31, 2024? 4. What pretax…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781285867977Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781285867977
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Accounting for Finance and Operating Leases | U.S. GAAP CPA Exams; Author: Maxwell CPA Review;https://www.youtube.com/watch?v=iMSaxzIqH9s;License: Standard Youtube License