Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 15, Problem 15.33E
Lessor’s initial direct costs; sales-type lease
• LO15–3, LO15–7
The lease agreement and related facts indicate the following:
- a. Leased equipment had a retail cash selling price of $300,000. Its useful life was five years with no residual value.
- b. The lease term is five years and the lessor paid $265,000 to acquire the equipment (thus, selling profit).
- c. Lessor’s implicit rate when calculating annual lease payments was 8%.
- d. Annual lease payments beginning January 1, 2018, the beginning of the lease, were $69,571.
- e. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $7,500.
Required:
Prepare the appropriate entries for the lessor to record:
- 1. The lease and the initial payment at its commencement.
- 2. Any entry(s) necessary at December 31, 2018, the fiscal year-end.
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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
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- Situation 2 3 Lease term (years) Asset's useful life (years) Asset's fair value 4 4 4 4 6 6 6 $44,000 $45,000 $41,000 $38,000 Purchase option that is reasonably certain to be exercised? No Yes No No End of yr. End of yr. Annual lease payments Lessor's implicit rate (known by lessee) Lessee's incremental borrowing rate Beg. of yr. Beg. of yr. 5% 6% 5% 6% 5% 5% 5% 5% Each of the four independent situations above describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee. (FV of $1, PV of $1. FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation Lease Classification 1. 2. 3. 4.arrow_forwardQUESTION 1 Assume a company (lessee) signs a lease for a forklift with the following predicates: Fair value of the forklift is $16,000 Lease term is 3 years Monthly payments of $500/month paid in advance $50 of the monthly payment is related to the maintenance Interest rate a bank would charge this company for a $16,000 loan over 3 years is 4% of the Useful Life of the forklift is 5 years Required: At the end of the lease term, the company can purchase the forklift for $1,000, which is the estimated fair value at the end of the leasearrow_forwardO e. $300,000 Jestion 3 For an operating lease, which statement is TRUE? ot yet swered Select one: ints out of O a. The Right of Use asset amortization amount will decrease each year. O b. Annual Lease Expense will be the amortization of the Right of Use asset less that year's interest expense. Flag question Oc. The recorded Lease Expense amount will be the same each year. O d. The annual amortization of the Right of Use asset will be debited to Amortization Expense each year. O e. To compute the cost of the Right of Use asset, the lessee will use the incremental rate, if known. estion 4 Indicate the type of Deferred Tax account created by Unearned Revenues and Accrued Revenues, respectively: yet wered Select one: nts out of O a. Asset, Asset O b. Liability, Asset O c.Asset, Liability O d. Liability, Liability Flag question stion 5 Which of the following requires intraperiod tax allocation? yet wered Select one: nts out of O a. Discontinued Operations Loss O b. Estimated Warranty…arrow_forward
- Exercise 15-1 (Static) Lease classification [LO15-1] Lease term (years) Asset's useful life (years) Asset's fair value Purchase option that is reasonably certain to be exercised? Annual lease payments. Lessor's implicit rate (known by lessee) Lessee's incremental borrowing rate Situation 1. 2 3 4 $44,000 Mo Beginning of year 5% 5x Lease Classification 4 Situation $45,000 Yes End of year 60% 5% 3 4 6 $41,000 Required: Each of the four independent situations above describes a lease requiring annual lease payments of $10,000 For each situation, determine the appropriate lease classification by the lessee. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) No Beginning of year 5% 5% $38,000 No End of year 6%arrow_forwardsarrow_forwardM1arrow_forward
- Q25 Chad Ltd negotiated a lease on the following terms: the term of the lease was 5 years; the estimated useful life of the leased equipment was 10 years; the purchase price was R60 000; and the annual lease payment was R5 000. This lease should be classified as_____. Select one: a. A finance lease b. neither operating nor finance lease c. An operating lease d. a financial leasearrow_forwardExercise 15-10 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and llability [LO15-2] Each of the three Independent situations below describes a finance lease in which annual lease payments are payable at the end of each year. The lessee is aware of the lessor's implicit rate of return. 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) Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset Situation 1 Situation 2 Situation 3 1 Lease Payments 10 10% 11% $680,000 Situation 2 20 8% 9% $1,020,000 6 11% 18% Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest whole dollar. Right-of-use Asset/Lease Payable $225,000arrow_forward3arrow_forward
- es Exercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1. FVA of $1, PVA of $1. EVAD of $1 and PVAD of $1) Situation 1 2 3 4 Lease term (years) 5 8 6 9 Lessor's rate of return Fair value of lease asset 8% 9% 7% 10% $ 55,000 $355,000 Lessor's cost of lease asset $ 55,000 $ 355,000 $ 80,000 $ 50,000 $470,000 $ 470,000 Residual value: Estimated fair value Guaranteed fair value 0 $ 55,000 $12,000 $50,000 0 0 $ 12,000 $ 55,000 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest…arrow_forwardExercise 15-9 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-2] Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Situation 1 2 3 Lease term (years) 11 21 4 Lessor's rate of return (known by lessee) 10% 8% 11% Lessee's incremental borrowing rate 11% 9% 10% Fair value of lease asset $800,000 $1,180,000 $385,000 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest whole dollar.arrow_forwardExercise 15-9 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-2] Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset Situation 1 Situation 2 Situation 3 Lease Payments Right-of-use Asset/Lease 1 Payable 10 10% 11% $790,000 Situation 2 20 8% 9% Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest whole dollar. $1,170,000 5 11% 10% $375,000arrow_forward
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