3rd Edition

ISBN: 9780136912644

Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella

Publisher: Pearson Education (US)

Concept explainers

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 18, Problem 18.18E

Operating Lease, Lessor. True Image Copier Company leases a multifunction copier to Fabach Incorporated The lease term is 4 years with no renewal options, the economic life of the copier is 7 years The fair value of the copier is $14,000, and True Image Company's equipment carrying value is also $14,000 The residual value expected at the end of the lease term is $5,000 and is not guaranteed There are no lease incentives and no initial direct costs paid by either party to the lease Fabach can acquire title to the copier by paying fair value at the end of the lease term The lease calls for monthly payments of $200 due on the first day of each month Fabach pays for maintenance to an independent third party The implicit rate in the lease is 5%. There is no transfer of ownership at the end of the lease term.

Required

a. Classify the lease for True Image Copier Company.
b. Provide the journal entries required over the lease term assuming that True Image prepares financial statements monthly Provide all supporting computations.

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Chapter 18, Problem 18.17E

Chapter 18, Problem 18.19E

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The comparative balance sheets and an income statement for Raceway Corporation follow. Balance Sheets As of December 31 Year 2 Year 1 Assets Cash $ 6,300 $ 48,400 Accounts receivable 10,200 7,260 Inventory 45,200 56,000 Prepaid rent 700 2,140 Equipment 140,000 144,000 Accumulated depreciation (73,400) (118,000) Land 116,000 50,000 Total assets $ 245,000 $ 189,800 Liabilities Accounts payable (inventory) $ 37,200 $ 40,000 Salaries payable 12,200 10,600 Stockholders’ equity Common stock, $50 par value 150,000 120,000 Retained earnings 45,600 19,200 Total liabilities and stockholders’ equity $ 245,000 $ 189,800 Income Statement For the Year Ended December 31, Year 2 Sales $ 480,000 Cost of goods sold (264,000) Gross profit 216,000 Operating expenses Depreciation expense (11,400) Rent expense (7,000) Salaries expense (95,200) Other operating expenses (76,000) Net income $ 26,400 Other Information Purchased…

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Chapter 18 Solutions

Intermediate Accounting

Ch. 18 - Does the lessee become the owner of the equipment...Ch. 18 - Prob. 18.2Q Ch. 18 - Prob. 18.3Q Ch. 18 - What are typical terms and provisions in a lease...Ch. 18 - How does a lease offer business and financial...Ch. 18 - Prob. 18.6Q Ch. 18 - How is the right-of-use asset measured?Ch. 18 - What components are included in a lease contract?Ch. 18 - How does a lessee separate lease and nonlease...Ch. 18 - How does a lessor separate lease and nonlease...

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Solution Summary: The author explains that lease is a long term rent agreement between two parties that is often clubbed with other clauses relating to maintenance or sale at the end of the lease period.

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Chapter 18 Solutions