EBK INTERMEDIATE ACCOUNTING: REPORTING
2nd Edition
ISBN: 9781337268998
Author: PAGACH
Publisher: YUZU
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Question
Chapter 20, Problem 8P
1.
To determine
Define the initial direct costs and discuss the accounting treatment of these costs. Explain whether the initial direct costs are treated in the same manner for (a) an operating lease, (b) a sales-type lease, (c) a direct finance lease.
2.
To determine
Identify whether the preceding lease is a sales-type lease or direct financing lease from the lessor’s point of view. Explain with reasons.
3.
To determine
Prepare
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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).…
Blue Corporation leases equipment from Falls Company on January 1, 2025. The lease agreement does not transfer ownership,
contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present
value of the lease payments is less than 90% of the fair value of the asset leased.
Prepare Blue's journal entries on January 1, 2025, and December 31, 2025. Assume the annual lease payment is $49,000 at the
beginning of each year, and Blue's incremental borrowing rate is 4%, which is the same as the lessor's implicit rate. (List all debit entries
before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation
purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,265. If no entry is
required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries…
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…
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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