EBK INTERMEDIATE ACCOUNTING: REPORTING
2nd Edition
ISBN: 9781337268998
Author: PAGACH
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 10MC
To determine
Identify the lease receivable account balance at the inception of the lease.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Geiberger Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each January 1, beginning January 1, 2017. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Geiberger’s January 1, 2017, journal entries.
edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2013. The lease terms, provisions, and related events are as follows: 11 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,00 to be made in advance at the beginning of eacy year.
2. The equipment costs $313,000. the equipment has an estimatd life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom.
3. Davis agrees to pay all executory costs.
4. The interest rate implicit in the leae is 14%.
5. The intial direct costs are insignificant and assumed to be zero.
6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
Prepare journal entries for Edom for the years 2013 and 2014.
Do not give answer in image formate
edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2013. The lease terms, provisions, and related events are
as follows: 11 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,00 to be made in advance at the beginning of eacy year.
2. The equipment costs $313,000. the equipment has an estimatd life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to
the benefit of Edom.
3. Davis agrees to pay all executory costs.
4. The interest rate implicit in the leae is 14%.
5. The intial direct costs are insignificant and assumed to be zero.
6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the
lessor.
Prepare journal entries for Edom for the years 2013 and 2014.
Chapter 20 Solutions
EBK INTERMEDIATE ACCOUNTING: REPORTING
Ch. 20 - Prob. 1GICh. 20 - What is the difference between the lessee and...Ch. 20 - Prob. 3GICh. 20 - Prob. 4GICh. 20 - Prob. 5GICh. 20 - Prob. 6GICh. 20 - What are the two types of lease classifications...Ch. 20 - Prob. 8GICh. 20 - Prob. 9GICh. 20 - Prob. 10GI
Ch. 20 - Prob. 11GICh. 20 - Describe the difference between how a lessee would...Ch. 20 - Prob. 13GICh. 20 - Prob. 14GICh. 20 - Prob. 15GICh. 20 - Prob. 16GICh. 20 - Prob. 17GICh. 20 - Prob. 18GICh. 20 - Prob. 19GICh. 20 - Prob. 20GICh. 20 - Prob. 21GICh. 20 - Prob. 1MCCh. 20 - Prob. 2MCCh. 20 - Prob. 3MCCh. 20 - Prob. 4MCCh. 20 - Prob. 5MCCh. 20 - Prob. 6MCCh. 20 - Prob. 7MCCh. 20 - Prob. 8MCCh. 20 - Rent received in advance by the lessor for an...Ch. 20 - Prob. 10MCCh. 20 - Next Level Keller Corporation (the lessee) entered...Ch. 20 - Prob. 2RECh. 20 - Prob. 3RECh. 20 - Prob. 4RECh. 20 - Prob. 5RECh. 20 - Prob. 6RECh. 20 - Prob. 7RECh. 20 - Prob. 8RECh. 20 - Prob. 9RECh. 20 - Prob. 10RECh. 20 - Prob. 1ECh. 20 - Prob. 2ECh. 20 - Lessee Accounting Issues Sax Company signs a lease...Ch. 20 - Prob. 4ECh. 20 - Prob. 5ECh. 20 - Prob. 6ECh. 20 - Prob. 7ECh. 20 - Lessor Accounting with Receipts at Beginning of...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Prob. 10ECh. 20 - Prob. 11ECh. 20 - Prob. 12ECh. 20 - Prob. 13ECh. 20 - Prob. 14ECh. 20 - Prob. 15ECh. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Prob. 2PCh. 20 - Prob. 3PCh. 20 - Lessee Accounting Issues Timmer Company signs a...Ch. 20 - Prob. 5PCh. 20 - Prob. 6PCh. 20 - Sales-Type Lease with Receipts at End of Year...Ch. 20 - Prob. 8PCh. 20 - Prob. 9PCh. 20 - Prob. 10PCh. 20 - Prob. 11PCh. 20 - Prob. 12PCh. 20 - Prob. 13PCh. 20 - Prob. 14PCh. 20 - Prob. 15PCh. 20 - Prob. 1CCh. 20 - Prob. 2CCh. 20 - Prob. 3CCh. 20 - Classification of Leases Part a. Capital leases...Ch. 20 - Prob. 5CCh. 20 - Prob. 6CCh. 20 - Prob. 7CCh. 20 - Prob. 8CCh. 20 - Prob. 9CCh. 20 - Prob. 10CCh. 20 - Prob. 11CCh. 20 - Prob. 12CCh. 20 - Prob. 13CCh. 20 - Prob. 14CCh. 20 - Prob. 15C
Knowledge Booster
Similar questions
- Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).arrow_forwardLow Falls Corporation (lessor) entered into a lease agreement on January 1, 2017, to provide Amazon Fleet Company (lessee) with a piece of machinery. The terms of the lease agreement were as follows. The lease is to be for 3 years with rental payments of $12,400 to be made at the beginning of each year. The machinery has a fair value of $70,010, a book value of $50,000, and an economic life of 7 years. At the end of the lease term, both parties expect the machinery to have a residual value of $40,000, $20,000 of which is guaranteed ($20,000 unguaranteed). The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. The implicit rate used by Low Falls is 5%, which is known by Amazon Fleet, and collectability of the payments is probable. Amazon Fleet’s incremental borrowing rate is 6%. Assume the lessor depreciates the asset on a cost basis (not fair value). Q: When testing the lease for…arrow_forwardLow Falls Corporation (lessor) entered into a lease agreement on January 1, 2017, to provide Amazon Fleet Company (lessee) with a piece of machinery. The terms of the lease agreement were as follows. The lease is to be for 3 years with rental payments of $12,400 to be made at the beginning of each year. The machinery has a fair value of $70,010, a book value of $50,000, and an economic life of 7 years. At the end of the lease term, both parties expect the machinery to have a residual value of $40,000, $20,000 of which is guaranteed ($20,000 unguaranteed). The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. The implicit rate used by Low Falls is 5%, which is known by Amazon Fleet, and collectability of the payments is probable. Amazon Fleet’s incremental borrowing rate is 6%. Assume the lessor depreciates the asset on a cost basis (not fair value). Q: When testing the lease for…arrow_forward
- Skor Co. leased equipment to Douglas Corp. on January 2, 2011, for an 8-year period expiring December 31, 2018. Equal payments under the lease are $600,000 and are due on January 2 of each year. The first payment was made on January 2, 2011. The cost of the equipment is $2,800,000. The lease is appropriately accounted for as a sales-type lease. The present value of the lease payments is $3,300,000. What amount of net profit on the sale should Skor report for the year ended December 31, 2011? a. $720,000 b. $500,000 c. $90,000 d. $600,000 e. $2,800,000arrow_forwardAt the beginning of 2016, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a fouryear lease. The lease is payable in four annual payments of $2 million at the end of each year. Required: 1. What is the effective rate of interest implicit in the agreement? 2. Prepare the lessee’s journal entry at the inception of the lease. 3. Prepare the journal entry to record the first lease payment at December 31, 2016. 4. Prepare the journal entry to record the second lease payment at December 31, 2017. 5. Suppose the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 11%. Prepare the lessee’s entry at the inception of the lease.arrow_forwardOn August 1, 2012, Mimi Company leased a machine to DartCompany for a six-year period requiring payments of P100,000 at the beginning of each year. The machine cost P480,000, which is the fair value at the lease date, and has a useful life of eight years with no residual value. Gabriel's implicit interest rate is 10% and present value factors are rounded off to three decimal places. Gabriel appropriately recorded the lease as a direct financing lease. At the inception of the lease, the lease receivables account balance should be a. P600,000 b. P586,800 c. P480,000 d. P479,100 Use the same information given in above. How much is the interest revenue relating to the lease for the year ended December 31, 2012? a. P48,000 b. P35,417 c. P25,000 d. P15,833 e. P38,000arrow_forward
- Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease noncancelable and requires annual rental payments of $50,000 to be made at the end of each year. 2. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero 3. Fox agrees to pay all executory costs. 4. The interest rate implicit in the lease is 12%. 5. The initial direct costs are insignificant and assumed to be zero. 6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. Required: 1. Next Level Determine if the lease is a sales-type or direct financing lease from Berne's point of view (calculate the selling price and assume that this is also the fair value).…arrow_forwardSax Company signs a lease agreement dated January 1, 2016, that provides for it to lease computers from Appleton Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. 2. The computers have an estimated life of 5 years, a fair value of $300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs. 4. The lease contains no renewal or bargain purchase option. 5. The annual payment is set by Appleton at $83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate, which is equal to its borrowing rate. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at…arrow_forwardDavidson, Incorporated leased a machine from Barwick Corporation. Barwick completed construction of the machine on January 1, 2024. The lease agreement for the $16,000,000 (fair value and present value of the lease payments) machine specified 4 equal payments at the end of each year. The useful life of the machine was expected to be 4 years with no residual value. Barwick's implicit interest rate was 9%. Lease date Fair value and present value of lease payments Lease term Useful life of machine Residual value Barwick's implicit interest rate 1. Determine the amount of each lease payment using Excel's PMT function 3. Prepare an amortization schedule for the 4-year term of the lease. Date 2. Prepare the journal entry for Davidson, Incorporated at the beginning of the lease on January 1, 2024. Date General Journal Debit January ,2024 January 1, 2024 December 31, 2024 December 31, 2025 December 31, 2026 December 31, 2027 Totals 4. Record the first lease payment on December 31, 2024. Date…arrow_forward
- On January 1, 2018, Naw Corporation leased a piece of machinery from Hoffherr Machinery's. The lease is a(n) 10 year, non-cancellable lease that requires lease payments of $5,000 due at the beginning of each year. The lease has been determined to be a capital lease because at least one of the classification criteria has been met. Naw Corporation needs to determine the present value of the lease payments so that they can record the asset and the liability at lease inception. Hoffherr Machinery's implicit rate of 10% is known to Naw Corporation. Complete the following from the perspective of Naw Corporation. Which of the following financial statement items is impacted in this transaction? The problem is solving for: The calculation involves: Excel® Formula Variables = Total asset asset = asset PV To record the inception of the lease cash PV 33795 Accounts To record the first lease payment ( Rate ( .1 Date of Delivery Debit 33795 5000 Leases Obligation Present Value An Annuity Due Nper 10…arrow_forwardTimmer Company signs a lease agreement dated January 1, 2016, that provides for it to lease equipment from Landau Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows: • The lease is noncancelable and has term of 5 years. • The annual rentals are $83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. • Timmer agrees to pay all executory costs at the end of each year. In 2016, these were insurance, $3,760; property taxes, $5,440. In 2017: insurance, $3,100; property taxes, $5,330. • There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of $300,000, an economic life of 5 years, and a zero residual value. Timmer's incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of…arrow_forwardAmerican Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. The lease agreement for the $4 million (fair valueand present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton’s implicit interestrate was 10%.Required:1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2018.2. Prepare an amortization schedule for the four-year term of the lease.3. Prepare the appropriate entries related to the lease on December 31, 2018.4. Prepare the appropriate entries related to the lease on December 31, 2020.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning