Concept explainers
a.
The classification of lease for lessee.
Given information:
Lease term is 3 years.
Lease doesn’t provide transfer of title.
Economic life of asset is 10years.
Fair value of the equipment is $9,000
Implicit interest rate is 6%
Annual lease payments are $700 subject to annual increase of 15%.
Lease rents are payable in the beginning.
Guaranteed residual value is $7,000.
b.
The initial measurement of right of use asset and lease liability and preparation of amortization tables for the lease term.
Given information:
Lease term is 3 years.
Lease doesn’t provide transfer of title.
Economic life of asset is 10years.
Fair value of the equipment is $9,000
Implicit interest rate is 6%
Annual lease payments are $700 subject to annual increase of 15%.
Lease rents are payable in the beginning.
c.
To prepare: The
Given information:
Lease term is 3 years.
Lease doesn’t provide transfer of title.
Economic life of asset is 10years.
Fair value of the equipment is $9,000
Implicit interest rate is 6%
Annual lease payments are $700 subject to annual increase of 15%.
Lease rents are payable in the beginning.
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Intermediate Accounting
- When a lease qualifies as a finance lease, what amount is initially recorded as the cost of the right-of-use asset? A) The present value of the lease payments B) The sum of the gross (undiscounted) lease payments. O A O B « Previous Next Not saved Submit Quizarrow_forwardThe following information is provided for an equipment leased by Lessee from Lessor. Lessee and Lessor both use IFRS. Inception Date of Lease Annual Lease Payment (Due: Beginning of Year, Starting Jan 1, 2020) Purchase option at of Lease Term (Certain to be exercised by Lessee) Lease Term Economic Life of Leased Equipment Lessor's Cost Fair Value of Asset Lessor's implicit rate Lessee's incremental borrowing rate Salvage value at the end of economic life) Select one: True O False Unearned Interest Income 30,858 ÷ January 01,2020 Sales 22,642 = 21,500 The lessor will most likely classify this as Sales Type Lease. Cost of Goods Sold 3,000 7 years 10 years Lessor will record the following at the beginning of the Lease term: Lease Receivable 122,642 ÷ 98,114 Same as present value of all future payments. 8%, known to Lessee Known to Lessee 7% 0 Timearrow_forwardPlease answer number 17 only.arrow_forward
- The lessee normally measures the lease liability to be recorded as the: Select one: a. Present value of the minimum lease payments. b. The future value of the minimum lease payments c. The fair market value of the leased asset. d. The sum of the cash payments over the term of the lease.arrow_forwardAssuming that this is classified as an operating lease, create an amortization table for the right-of-use asset. Amortization of Right-of-Use Asset Lease Expense Amortizatio n of Right- Interest of-Use Asset 12/31/2019 12/31/2020 N 12/31/2021 23 12/31/2022 12/31/2023 Total Answer: Amortization of Right-of-Use Asset Lease Expense Amortizatio n of Right- Interest of-Use Asset 12/31/2019 12,400 2,371 10,029 12/31/2020 12,400 1,837 10,563 12/31/2021 12,400 1,266 11,134 12/31/2022 12,400 654 11,746 12/31/2023 12,400 0 12,400 Total 62,000 6,128 55,872 Diff: 2 Var: 1 Objective: 18.4 IFRS/GAAP: GAAP AACSB: Application of knowledge 22) Prepare the journal entry required on December 31, 2019. Assume this is an operating lease. Answer:arrow_forwardOwefix a. compute the amount of lease receiveable for the leaseb. discusd the bethre of the leasec. prepara an amoritization table for the lessee and lessorarrow_forward
- Lessor Accounting with Guaranteed Residual Value Use the information for Edom Company in E20-8, except that the residual value was guaranteed by Davis Company (the lessee). Required: 1. Assuming that the lease is a sales-type lease, calculate the selling price. 2. Prepare a table summarizing the lease receipts and interest income earned by Edom. 3. Prepare journal entries for Edom tor the years 2019 and 2020.arrow_forwardUse the following information to decide whether this equipment lease qualifies as an operating, sales-type, or direct financing lease to a lessor. a. There is no transfer of ownership at the end of the lease term. There is no bargain purchase option. The lease term is 60% of the economic life of the leased property. The present value of lease payments, including a residual value guaranteed by the lessee, is 100% of the fair value of the leased property to the lessor. The collectability of the lease payments is reasonably assured. The leased asset was not of a specialized nature. b. Same as (a), except that the residual value is guaranteed by a third party, not the lessee. The present value of the residual value guarantee is 15% of the fair value of the leased property. c. Same as (a), except that: the present value of the lease payments, including a residual value guaranteed by the lessee, is only 50% of the fair value of the leased asset. The collectability of the minimum lease payments is not predictable.arrow_forwardThe appropriate asset value reported in the balance sheet by the lessee for an operating lease is: Multiple Choice Sum of the lease payments. The lessor's book value of the asset at the beginning of the lease. Present value of the lease payments. Zero, unless a prepayment or accrual is involved.arrow_forward
- Which of the following is a TRUE statement? Oa The Lessee recognizes a single Lease Expense on the Income Statement for a Finance Type Lease. Ob Under an Operating Lease, the Lessor records each Lease Payment Receipt as part Interest Revenue and part Lease Revenue. Oc Under an Operating Lease, the Lessot reports a Lease Receivable Asset on their Balance Sheet equal to the presernt value of Lease payments plus the present value of a Rem d A Lessee reports Interest Expense on a Finance Lease but not on an Operating Lease. Oe. Both a Guaranteed and Unguaranteed Residual Value affect the Lessee's computation of amounts capitalized as a Leased Assetarrow_forwardExplain which of following would result in the lessee classifying the lease as a finance lease. a. The lease is for a major part of the economic life of the asset. b. The lease term is for 12 months or less. c. The lease transfers ownership of the asset at the end of the lease.arrow_forwardTOPIC: LEASESa. Give the entries in the books of Chris Tucker for years 2020 and 2021 as a result of the lease contract.b. Give the entries in the books of Jackie Chan Leasing for years 2020 and 2021.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning