Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 20, Problem 3E
Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. 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. The computers are not specialized for Sax.
- 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 directly to a third party.
- 4. The lease contains no renewal or bargain purchase options.
- 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. Sax’s incremental borrowing rate is 10%. - 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 the inception of the lease (round to the nearest dollar).
- 3. Prepare a table summarizing the lease payments and interest expense.
- 4. Prepare
journal entries for Sax for the years 2019 and 2020.
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Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:
1.
The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year.
2.
The cost of the equipment is $500,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time.
3.
The equipment has a fair value of $500,000.
4.
Ten-Care agrees to pay all executory costs directly to a third party.
5.
The lease contains no renewal or bargain purchase option.
6.
The interest rate implicit in the lease is 10%.
7.
The initial direct costs are insignificant and assumed to be zero.
8.
It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee.
Required:
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Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the…
Under leases
On January 1, 2019, AA Company leased a plastic molding machine from BB Company. Additional information regarding the lease agreement follows:
Lease term
4 years
Annual rental payment, in advance
66,500
Residual value at the end of the lease term
15,000
Residual value guaranteed by AA
0
Implicit rate
8%
Expected useful life of the machine
6 years
AA intends to return the machine to BB at the end of the lease. The annual rental payment includes P1,500 to cover the costs of maintenance and insurance. AA Company, likewise paid P8,000 to its broker for securing the lease.
(Use two decimal places for present value factor in answer the following questions)
- What is the balance of the lease liability at January 1, 2019?
- What is the interest expense to be reported by AA in 2019?
- What is the balance of the lease liability at December 31, 2019?
- What is the depreciation expense reported in 2019?
- What is the carrying value of the leased asset at December 31, 2019?
Please provide solutions
Chapter 20 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 20 - Prob. 1GICh. 20 - List four potential benefits to the lessor of...Ch. 20 - Prob. 3GICh. 20 - What is a substitution right, and when does that...Ch. 20 - Prob. 5GICh. 20 - List the five criteria used to determine if a...Ch. 20 - Prob. 7GICh. 20 - Prob. 8GICh. 20 - Describe briefly the procedures followed by the...Ch. 20 - Owens Company leased equipment for 4 years at...
Ch. 20 - Describe the difference between how a lessee would...Ch. 20 - Prob. 12GICh. 20 - What is the basic difference between the...Ch. 20 - Why are compound interest concepts appropriate and...Ch. 20 - Describe briefly the accounting procedures...Ch. 20 - Prob. 16GICh. 20 - Prob. 17GICh. 20 - Which of the following should be included by the...Ch. 20 - East Company leased a new machine from North...Ch. 20 - Prob. 3MCCh. 20 - Fox Company, a dealer in machinery and equipment,...Ch. 20 - Fox Company, a dealer in machinery and equipment,...Ch. 20 - In the third year of a 6-year finance lease, the...Ch. 20 - Prob. 7MCCh. 20 - At its inception, the lease term of Lease G is 65%...Ch. 20 - Rent received in advance by the lessor for an...Ch. 20 - On August 1, 2019, Kern Company leased a machine...Ch. 20 - Next Level Keller Corporation (the lessee) entered...Ch. 20 - Use the information in RE20-1. Prepare the journal...Ch. 20 - Next Level Garvey Company (the lessee) entered...Ch. 20 - Use the information in RE20-3. Prepare the journal...Ch. 20 - Use the information in RE20-3. Prepare the journal...Ch. 20 - Montevallo Corporation leased equipment from Folio...Ch. 20 - Use the information in RE20-6. However, assume...Ch. 20 - Use the following information to decide whether...Ch. 20 - Use the information in RE20-3. Prepare the journal...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Lessee Accounting with Payments Made at Beginning...Ch. 20 - Lessee Accounting Issues Sax Company signs a lease...Ch. 20 - Lessee Accounting for Finance Lease On January 1,...Ch. 20 - Prob. 5ECh. 20 - Lessor Accounting Issues Ramsey Company leases...Ch. 20 - Lessor Accounting with Receipts at End of Year...Ch. 20 - Lessor Accounting with Unguaranteed Residual Value...Ch. 20 - Lessor Accounting with Guaranteed Residual Value...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Guaranteed and Unguaranteed Residual Values...Ch. 20 - Lessor Accounting Issues Rexon Company leases...Ch. 20 - Lessee and Lessor Accounting Issues Diego Leasing...Ch. 20 - Lessee and Lessor Accounting Issues The following...Ch. 20 - Lease Income and Expense Reuben Company retires a...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Accounting for Leases by Lessee and Lessor Scupper...Ch. 20 - Lessee Accounting Issues Timmer Company signs a...Ch. 20 - Sales-Type Lease with Guaranteed Residual Value...Ch. 20 - Sales-Type Lease with Unguaranteed Residual Value...Ch. 20 - Sales-Type Lease with Receipts at End of Year...Ch. 20 - Initial Direct Costs and Related Issues On January...Ch. 20 - Various Lease Issues for Lessor and Lessee Lessee...Ch. 20 - Prob. 10PCh. 20 - Various Lease Issues Farrington Company leases a...Ch. 20 - Comprehensive Landlord Company and Tenant Company...Ch. 20 - Prob. 1CCh. 20 - Identified Asset A customer enters into a 3-year...Ch. 20 - Prob. 3CCh. 20 - Types of Leases On January 1, Hazard Company, a...Ch. 20 - Initial Direct Costs Efland Company leases...Ch. 20 - Prob. 6C
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