EBK INTERMEDIATE ACCOUNTING: REPORTING
2nd Edition
ISBN: 9781337268998
Author: PAGACH
Publisher: YUZU
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Chapter 20, Problem 7MC
To determine
Identify the correct options for interest expense and
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Grande Machinery Company purchased, for cash, a $60,000 custom machine on January 1, 2015. The machine has an estimated 5-year life and will be straight-line depreciated with no salvage value. The machine was then leased to Sunshine Engineering Company, an 80%-owned subsidiary, under a 5-year operating lease for $15,000 per year, payable each January.1. Record the 2015 entries for the purchase of the machine and the lease to Sunshine Engineering Company on the books of GrandeMachinery Company.2. Record the 2015 entries for the transaction on the books of Sunshine Engineering Company.3. Provide the elimination entries that would be made on the 2015 consolidated worksheet.
On January 1, 2018, Sauder Corporation signed a five-year noncancelable lease for equipment.
The terms of the lease called for Sauder to make annual payments of $200,000 at the beginning
of each year for five years beginning on January 1, 2018 with the title passing to Sauder at the
end of this period. The equipment has an estimated useful life of 7 years and no salvage value.
Sauder uses the straight-line method of depreciation for all of its fixed assets. The minimum
lease payments were determined to have a present value of $833,972 at an effective interest
rate of 10%.
What type of lease would this be for Sauder?
On January 1, 2016, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of P100,000 at the end of each year for ten years with title to pass to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no residual value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of P671,008 at an effective interest rate of 8%. With respect to this capitalized lease, Dean should record for 2016
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
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- On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of P300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of P1,800,000, based on implicit interest of10%. In its 2018 income statement, what amount of interest expense should Hernandez report from this lease transaction?arrow_forwardOn January 1, 2021, Dean Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dean to make annual payments of $220,000 at the end of each year for ten years with the title passing to Dean at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Dean uses the straight-line method of depreciation for all of its fixed assets. Dean accordingly accounted for this lease transaction as a finance lease. The lease payments were determined to have a present value of $1,342,016 at an effective interest rate of 8%. With respect to this lease, Dean should record for 2021 Question 301 options: interest expense of $91,363 and depreciation expense of $134,202. interest expense of $89,468 and depreciation expense of $76,136. interest expense of $107,361 and depreciation expense of $89,468. lease expense of $220,000.arrow_forwardOn January 1, 2021, Sandhill Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Sandhill to make annual payments of $196000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Sandhill at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sandhill uses the straight-line method of depreciation for all of its fixed assets. Sandhill accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $830985 at an effective interest rate of 9%.In 2021, Sandhill should record interest expense of $138851. $74789. $57149. $121211.arrow_forward
- Wake Coffee Co. has a piece of equipment no longer needed for production. The company purchased the equipment for $75,000 and has accumulated depreciation of $10,000 related to the equipment. Wake Coffee Co. has determined it can either lease the equipment for the next ten years, for yearly revenues of $9,000, or sell the equipment for $70,000. If leased, the company expects to incur repairs and other expenses of $22,000 over the life of the lease. The equipment would also have a $3,500 salvage value. If sold, the broker requires a 4% broker commission. Prepare a differential analysis to determine if the company should sell (Alternative 1) or lease (Alternative 2) the equipment.arrow_forwardPull Company is considering the disposal of equipment that is no longer needed for operations. The equipment originally cost $600,000, and accumulated depreciation to date totals $460,000. An offer has been received to lease the machine for its remaining useful life for a total of $300,000, after which the equipment will have no salvage value. The repair, insurance, and property tax expenses during the period of the lease are estimated at $75,800. Alternatively, the equipment can be sold through a broker for $230,000 less a 10% commission. Prepare a differential analysis report, dated June 15 of the current year, on whether the equipment should be leased or sold. Pull Company Proposal to Lease or Sell Equipment June 15, 20XX Net revenue from leasing: Revenue from lease Costs associated with the lease X Net revenue from lease X Net revenue from selling: Sales price X Commission expense on sale X Net revenue from selling Net advantage of lease alternative diarrow_forwardOn January 2, 2021, Blossom, Inc. signed a 10-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $280000 starting at the beginning of the first year, with title passing to Blossom at the expiration of the lease. Blossom treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Blossom uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $1720479, based on implicit interest of 10%.In its 2021 income statement, what amount of amortization expense should Blossom report from this lease transaction? $280000 $114699 $142699 $172048arrow_forward
- Eubank Company, as lessee, enters into a lease agreement on July 1, 2018, for equipment. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years, with no renewal option. Payments of $978,446 are due on July 1 of each year. The fair value of the equipment on July 1, 2018 is $3,500,000. The equipment has an economic life of 6 years with no salvage value. Eubank depreciates similar machinery it owns on the double-declining balance basis. The lessee pays all executory costs. Eubank’s incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for 4 periods at 8%, 3.57710; at 10%, 3.48685). Instructions (a) Indicate the type of lease Eubank Company has entered into and what accounting treatment is applicable. This is a capital lease; therefore, it should be accounted for by the capital lease method. (b) Prepare the journal…arrow_forwardOn January 1, 2021, Sheridan Corporation signed a 5-year noncancelable lease for equipment. The terms of the lease called for Sheridan to make annual payments of $193000 at the beginning of each year for 5 years beginning on January 1, 2021 with the title passing to Sheridan at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Sheridan uses the straight-line method of depreciation for all of its fixed assets. Sheridan accordingly accounts for this lease transaction as a finance lease. The lease payments were determined to have a present value of $818266 at an effective interest rate of 9%.In 2021, Sheridan should record interest expense of $136726. $119356. $56274. $73644.arrow_forwardOn January 2, 2021, Sandhill, Inc. signed a 10-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $260000 starting at the beginning of the first year, with title passing to Sandhill at the expiration of the lease. Sandhill treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Sandhill uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $1668591, based on implicit interest of 9%.In its 2021 income statement, what amount of amortization expense should Sandhill report from this lease transaction? ANSWER CHOICES: $166859 $111239 $137239 $260000arrow_forward
- On January 2, 2021, Ivanhoe, Inc. signed a 10-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $200000 starting at the beginning of the first year, with title passing to Ivanhoe at the expiration of the lease. Ivanhoe treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Ivanhoe uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $1283532, based on implicit interest of 9%.In its 2021 income statement, what amount of amortization expense should Ivanhoe report from this lease transaction? $85569 $105569 $128353 $200000arrow_forwardOn January 1, Year 1, Montana Mining Equipment LLC purchased a new excavator for $1.5 million with an expected 20-year useful life and no residual value. Shortly thereafter, this equipment was leased by Shasta Mining Corp. who will make annual lease payments on January 1 of each year for $300,000, starting on January 1, Year 1. The lease term is 16 years with no purchase option. This equipment reverts back to Montana Mining at the end of the lease. The estimated residual value at the end of the lease term is $500,000 and is guaranteed by Shasta Mining who expects the estimated residual value at the end of the lease term to be $500,000. The implicit interest rate of the lease is 5% and is known by Shasta. a) This problem pertains to the LESSEE. What type of lease is this?Answer b) Who is the Lessor?Answer c) Who is the Lessee?Answer d) What is the present value of the lease payments?Note: Round answer to the nearest whole number.$Answer e) Prepare the appropriate journal entries for the…arrow_forwardTo raise operating funds, Signal Aviation sold an airplane on January 1, 2016, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $800,000. Its cost and its book value were $620,000. Its useful life is estimated to be 15 years. The lease requires Signal to make payments of $102,771 to the finance company each January 1. Signal depreciates assets on a straight-line basis. The lease has an implicit rate of 11%. Required: Prepare the appropriate entries for Signal on: 1. January 1, 2016, to record the sale-leaseback. 2. December 31, 2016, to record necessary adjustments.arrow_forward
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