INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
9th Edition
ISBN: 9781260216141
Author: SPICELAND
Publisher: MCG CUSTOM
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Chapter 15, Problem 15.16BE
Lessor’s initial direct costs; sales-type lease
• LO15–3, LO15–7
Bryant leased equipment that had a retail cash selling price of $600,000 and a useful life of five years with no residual value. The lessor paid $530,000 to acquire the equipment and used an implicit rate of 8% when calculating annual lease payments of $139,142 beginning January 1, the beginning of the lease. Lease payments will be made January 1 each year of the lease. Incremental costs of consummating the lease transaction incurred by the lessor were $15,000. What is the effect of the lease on the lessor’s earnings during the first year (ignore taxes)?
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Exercise 15-33 (Algo) Nonlease payments; lessor and lessee [LO15-2, 15-7]
On January 1, 2024, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 11% rate of return for providing long-term financing. The lease agreement specified the following:
Ten annual payments of $61,000 beginning January 1, 2024, the beginning of the lease and each December 31 thereafter through 2032.
The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $346,464.
The lease qualifies as a finance lease/sales-type lease.
A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $8,000 per year are specified, beginning January 1, 2024. NRC was to pay this cost as incurred, but lease payments reflect this expenditure.
A partial amortization schedule, appropriate for both the lessee and lessor, follows:
Note: Use…
Chapter 15 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
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
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- Please answerarrow_forwardProblem 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.arrow_forwardBrief Exercise 15-16 (Algo) Lessor's Initial direct costs; sales-type lease [LO15-3, 15-7] Bryant leased equipment that had a retall cash selling price of $700,000 and a useful life of four years with no residual value. The lessor spent $580,000 to manufacture the equipment and used an implicit rate of 9% when calculating annual lease payments of $198.228 beginning January 1, the beginning of the lease. Lease payments will be made January 1 each year of the lease. Incremental costs of consummating the lease transaction incurred by the lessor were $20,000. What is the effect of the lease on the lessor's earnings during the first year, not including any effect of depreciation no longer required on the asset under lease (Ignore taxes)? Note: Input decreases to Income as negative amounts. Impact on lessor's pretax earningsarrow_forward
- Problem 15-3 (Algo) Lease amortization schedule [LO15-2] On January 1, 2024, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic Portions of the Equipment Leasing's lease amortization schedule appear below: January 1 2024 2025 2026 2027 2028 2029 2030 2041 2042 2043 Payments $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 Effective Interest $ 22,167 $ 21,734 $ 21,257 $ 20,733 $ 20,156 $ 19,522 1. Lease liability 2. Right-of-use asset 3. Lease term 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense Decrease in Balance $ 26,500 $ 4,333 $ 4,766 $ 5,243 $ 5,767 $ 6,344 $ 6,978 $ 6,590 $ 19,910 $ 4,599 $ 21,901 $ 2,409 $ 24,091 Outstanding Balance $ 248,178 $ 221,679 $ 217,337 $ 212,571 $ 207,328 $ 201,561 $ 195,217 $ 188,238…arrow_forwardVisnoarrow_forwardSh16arrow_forward
- Sagararrow_forwardBrief Exercise 15-3 (Algo) Lessee and lessor; calculate interest; finance/sales-type lease [LO15-2] A finance lease agreement calls for quarterly lease payments of $5,302 over a 15-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $188,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a partial amortization table up to the October 1 payment. Note: Enter all amounts as positive values. Round your answers to the nearest whole dollar. Date July 1 July 1 October 1 Lease Payment Effective Interest Decrease in Outstanding balance balancearrow_forwardPROBLEM 4: Lease arrangement with Guaranteed Residual Value and annual fixed lease payment is paid at the beginning of each year, with DIRECT COST and LEASE INCENTIVE Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental of P600,000 which is to be paid in advance at the beginning of each year. The lease contract provides that the lessee has guaranteed a P100,000 residual value of the leased asset and a lease incentive P80,000. Initial direct cost incurred and paid by the lessee amounted to P200,000. The implicit interest rate in the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.arrow_forward
- Exercise 15-17 (Algo) Lessee and lessor; operating lease [LO15-4] On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $18,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $106,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. 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) Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2) Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of…arrow_forwardExercise 15-17 (Algo) Lessee and lessor; operating lease [LO15-4] On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. . The contract calls for four rent payments of $20,000 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $110,000 and were expected to have a useful life of eight years with no residual value. . Both firms record amortization and depreciation semiannually. 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. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first…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
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