A budget is a financial plan for a future period. The budget is prepared usually for a financial year. Budgets can be prepared for revenue and expenses. Budgets help the company to plan for future income and expenses and evaluate business performance. The manufacturing overhead budget is prepared to estimate the amount of overhead for the budgeted period. The overhead includes the variable overhead and fixed overhead. To prepare: the manufacturing overhead budget.

Question

Zanzibar Limited entered into a lease agreement on July 1 2016 to lease some highly customized hydraulic equipment to Kaizen Limited. The fair value of the equipment as at that date was $ 700,000. The terms of the lease agreement were: Lease term 5 years Equipment economic life 6 years Annual rental payment, in arrears (commencing June 30th 2017) $160,000 Equipment residual value $100,000 Guaranteed residual value by Zanzibar $60,000 Incremental borrowing rate 8% Interest rate implicit in the lease 6% Note: the lease is cancellable but only with Zanzibar’s permission At the end of the lease term, the equipment is to be returned to Zanzibar Limited. On July 1, 2016, Zanzibar incurred $12,000 in legal fees for setting up the lease. The annual rental payment includes $10, 000 to reimburse the lessor for maintenance fees incurred on behalf of the lessee. Requirements: a) Discuss the nature of the lease using the appropriate criteria. Justify your answer using calculations where…

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Question

Chapter 8, Problem 8.5E

1.

To determine

Concept Introduction:

A budget is a financial plan for a future period. The budget is prepared usually for a financial year. Budgets can be prepared for revenue and expenses. Budgets help the company to plan for future income and expenses and evaluate business performance.

The manufacturing overhead budget is prepared to estimate the amount of overhead for the budgeted period. The overhead includes the variable overhead and fixed overhead.

To prepare: the manufacturing overhead budget.

2.

To determine

Concept Introduction:

A budget is a financial plan for a future period. The budget is prepared usually for a financial year. Budgets can be prepared for revenue and expenses. Budgets help the company to plan for future income and expenses and evaluate business performance.

The manufacturing overhead budget is prepared to estimate the amount of overhead for the budgeted period. The overhead includes the variable overhead and fixed overhead.

To prepare: the predetermined overhead rate.

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Zanzibar Limited entered into a lease agreement on July 1 2016 to lease some highly customized hydraulic equipment to Kaizen Limited. The fair value of the equipment as at that date was $ 700,000. The terms of the lease agreement were: Lease term 5 years Equipment economic life 6 years Annual rental payment, in arrears (commencing June 30th 2017) $160,000 Equipment residual value $100,000 Guaranteed residual value by Zanzibar $60,000 Incremental borrowing rate 8% Interest rate implicit in the lease 6% Note: the lease is cancellable but only with Zanzibar’s permission At the end of the lease term, the equipment is to be returned to Zanzibar Limited. On July 1, 2016, Zanzibar incurred $12,000 in legal fees for setting up the lease. The annual rental payment includes $10, 000 to reimburse the lessor for maintenance fees incurred on behalf of the lessee. Requirements: a) Discuss the nature of the lease using the appropriate criteria. Justify your answer using calculations where…

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