9th Edition

ISBN: 9781260681956

Author: SPICELAND

Publisher: MCG

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Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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Textbook Question

Chapter 15, Problem 15.16P

Lessor’s initial direct costs; operating and sales-type leases

• LO15–2, LO15–3, LO15–4, LO15–7

Terms of a lease agreement and related facts were:

a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation).

b. Annual lease payments at the beginning of each year were $20,873, beginning January 1.

c. Lessor’s implicit rate when calculating annual rental payments was 10%.

d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor.

Required:

Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions:

1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease).

2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%.

3. The lease term is six years and the lessor paid $85,000 to acquire the asset.

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Chapter 15, Problem 15.15P

Chapter 15, Problem 15.17P

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Exercise 3-12A (Algo) Conducting sensitivity analysis using a spreadsheet LO 3-5 Use the below table to answer the following questions. Selling Price$27.00 Variable 2,100 3,100 Fixed Cost Cost Sales Volume 4,100 Profitability 5,100 6,100 $25,700 8 $14,200 $33,200 $52,200 $71,200 $90,200 25,700 9 12,100 30,100 48,100 66,100 84,100 25,700 10 10,000 27,000 44,000 61,000 78,000 35,700 8 4,200 23,200 42,200 61,200 80,200 35,700 9 2,100 20,100 38,100 56,100 74,100 35,700 10 17,000 34,000 51,000 68,000 45,700 8 (5,800) 13,200 32,200 51,200 70,200 45,700 9 (7,900) 10,100 28,100 46,100 64,100 45,700 10 (10,000) 7,000 24,000 41,000 58,000 Required a. Determine the sales volume, fixed cost, and variable cost per unit at the break-even point. b. Determine the expected profit if Rundle projects the following data for Delatine: sales, 4,100 bottles; fixed cost, $25,700; and variable cost per unit, $10. c. Rundle is considering new circumstances that would change the conditions described in…

Chapter 15 Solutions

INTERMEDIATE ACCOUNTING, W/CONNECT

Ch. 15 - Prob. 15.1Q Ch. 15 - Prob. 15.2Q Ch. 15 - Prob. 15.3Q Ch. 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...

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Solution Summary: The author explains that initial direct cost refers to the cost that would not have been incurred had the lease agreement not occurred. Sales-type lease is a parallel type of direct financing whereby the owner (lessor) purchases the

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