Nonlease costs; lessor and lessee • LO15–2, LO15–7 Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2018, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $936,492. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through a 20-year service agreement with Midway Service Company requiring 20 annual payments of $3,000 beginning December 31, 2018. Progressive Insurance Company charges Branif $3,000 annually for hazard insurance coverage on the equipment. Both companies use straight-line depreciation or amortization. Required: Prepare the appropriate entries for both the lessee and lessor to record the second lease payment and depreciation on December 31, 2019, under each of three independent assumptions: 1. The lessee pays maintenance costs as incurred. The lessor pays insurance premiums as incurred. The lease agreement requires annual payments of $100,000. 2. The contract specifies that the lessor pays maintenance costs as incurred. The lessee’s lease payments were increased to $103,000 to include an amount sufficient to reimburse these costs. 3. The lessee’s lease payments of $103,000 included $3,000 for hazard insurance on the equipment rather than maintenance.
Nonlease costs; lessor and lessee • LO15–2, LO15–7 Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2018, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $936,492. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through a 20-year service agreement with Midway Service Company requiring 20 annual payments of $3,000 beginning December 31, 2018. Progressive Insurance Company charges Branif $3,000 annually for hazard insurance coverage on the equipment. Both companies use straight-line depreciation or amortization. Required: Prepare the appropriate entries for both the lessee and lessor to record the second lease payment and depreciation on December 31, 2019, under each of three independent assumptions: 1. The lessee pays maintenance costs as incurred. The lessor pays insurance premiums as incurred. The lease agreement requires annual payments of $100,000. 2. The contract specifies that the lessor pays maintenance costs as incurred. The lessee’s lease payments were increased to $103,000 to include an amount sufficient to reimburse these costs. 3. The lessee’s lease payments of $103,000 included $3,000 for hazard insurance on the equipment rather than maintenance.
Solution Summary: The author explains that maintenance expenses, hazard insurance, service contracts, and property taxes are related with the operating expenses of the asset.
Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2018, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $936,492. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through a 20-year service agreement with Midway Service Company requiring 20 annual payments of $3,000 beginning December 31, 2018. Progressive Insurance Company charges Branif $3,000 annually for hazard insurance coverage on the equipment. Both companies use straight-line depreciation or amortization.
Required:
Prepare the appropriate entries for both the lessee and lessor to record the second lease payment and depreciation on December 31, 2019, under each of three independent assumptions:
1. The lessee pays maintenance costs as incurred. The lessor pays insurance premiums as incurred. The lease agreement requires annual payments of $100,000.
2. The contract specifies that the lessor pays maintenance costs as incurred. The lessee’s lease payments were increased to $103,000 to include an amount sufficient to reimburse these costs.
3. The lessee’s lease payments of $103,000 included $3,000 for hazard insurance on the equipment rather than maintenance.
Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.
The following errors took place in journalizing and posting transactions:a. The payment of $3,125 from a customer on account was recorded as a debit to Cash and a credit toAccounts Payable.b. Advertising expense of $1,500 paid for the current month was recorded as a debit to MiscellaneousExpense and a credit to Advertising Expense.c. The purchase of supplies of $2,690 on the account was recorded as a debit to Office Equipment anda credit to Supplies.d. The receipt of $3,750 for services rendered was recorded as a debit to Accounts Receivable and acredit to Fees Earned.Required:Prepare journal entries to correct the errors.Each error correction carries equal marks.
Required:a) Journalize the following transactions using the direct write-off method of accounting foruncollectible receivables:Aug. 7. Received $175 from Roosevelt McLair and wrote off the remainder owed of $400 asuncollectible.Nov. 23. Reinstated the account of Roosevelt McLair and received $400 cash in full payment.b) Journalize the following transactions using the allowance method of accounting for uncollectiblereceivables:Feb. 12. Received $750 from Manning Wingard and wrote off the remainder owed of $2,000 asuncollectible.June 30. Reinstated the account of Manning Wingard and received $2,000 cash in full payment.Each journal carries equal marks
If someone tracks, tallys and totals a current liabilities for an accounting period, and then seeks to apply this value in a calculation to assess our liquidity, what’s the difference between the current ratio and the “acid-test” (or “quick”) ratio? Does the difference between these two metrics even matter?
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