On 1 March 20X4, Machine Manufacturing Co. leased a machine to Dry Goods through a three-year lease. The annual lease payments of $19,400 start on 1 March 20X4, and continue for three years. The interest rate implicit in the lease is 9% and the machine will remain with the lessee at the end of the lease. Machines of this type are usually sold for $53,527 with a cost to Machine Manufacturing Co. of $10,400 to build. Required: 1. Should this lease be accounted for as a financing - type lease or a manufacturer or dealer - type lease? multiple choice Finance lease Sales lease 2. What journal entries should be recorded on March 1, 20X 4? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

On 1 March 20X4, Machine Manufacturing Co. leased a machine to Dry Goods through a three-year lease. The annual lease payments of $19,400 start on 1 March 20X4, and continue for three years. The interest rate implicit in the lease is 9% and the machine will remain with the lessee at the end of the lease. Machines of this type are usually sold for $53,527 with a cost to Machine Manufacturing Co. of $10,400 to build. Required: 1. Should this lease be accounted for as a financing - type lease or a manufacturer or dealer - type lease? multiple choice Finance lease Sales lease 2. What journal entries should be recorded on March 1, 20X 4? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

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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).
Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
On 1 March 20x4, Machine Manufacturing Co. leased a machine to Dry Goods through a three-year lease. The annual lease payments of $24,400 start on 1 March 20X4, and continue for three years. The interest rate implicit in the lease is 7% and the machine will remain with the lessee at the end of the lease. Machines of this type are usually sold for $68,516 with a cost to Machine Manufacturing Co. of $17,400 to build. Required: 1. Should this lease be accounted for as a financing-type lease or a sales-type lease? O Finance lease O Sales lease 2. What journal entries should be recorded on March 1, 20X4? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transacttion st Journal entry worksheet
At the beginning of the current year, CPA Co, leased a machine to CMA Co. The machine had an original cost of P6,000,000. The lease term was five years and the implicit interest rate on the lease was 15%. The lease is properly classified as a direct financing lease. The annual payments of P1,750,000 are made each December 31. The machine reverts to lessor at the end of the lease term, at which the residual value of the machine will be P275,000 which is unguaranteed.Required: Write answer without peso sign withcommas.What is the total financial revenue?
On 1/1/21, Hall Inc entered into a lease agreement with Oates Co. Hall leased a machine from Oates for 9 years. The estimated useful life of the machine is 9 years. At the end of the 9 year lease term, ownership of the machine will transfer back to Oates. The lease agreement calls for annual payments of $150,000, to begin on 1/1/21. The borrowing rate is 10%. The present value of the lease payments is $949,500. Show all computations. Prepare a lease amortization table for 1/1/21, 1/1/22 and 1/1/23.. Prepare journal entries for Oates (lessor sales type lease) for 1/1/21, 12/31/21, 1/1/22, 12/31/22 &1/1/23.
On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 8 years; the economic life of the asset is 12 years. The cost of the equipment is $36,000; its fair value is $61,000. Lessor’s implicit rate is 7%; Lessee’s incremental borrowing rate is 7%. Lease payments of $9000 are due at the beginning of each year (PV $57,510). At the end of the lease term, the asset is expected to have a residual value of $6000 (PV $3492), none of which is guaranteed by Lessee. Which of the following is true at the inception of the lease? The ROU asset is recorded if the lease is a finance lease but not if it is an operating lease. The ROU asset is recorded if the lease is an operating lease but not if it is a finance lease. Lessor considers the unguaranteed residual value as a source for recovering its investment when computing the periodic lease payments. Lessee would add in the present value of the residual value if guaranteeing it for the full $6000 when recording the…
On January 1, 20x1, Row Co. leased a machine from Boat, Inc. Information on the lease is as follows: Annual rent payable at the beginning of each year P200,000 10 years 12 years Lease term Useful life of machine Implicit interest rate 10% The lease contract provides Row Co. an option to purchase the machine at the end of the lease term for P100,000. The option price approximates the machine's expected fair value at the end of the lease. Row Co. is reasonably certain to the exercise the option. What amount of interest expense should Row Co. recognize on the lease in 20x1? а. 139,036 b. 135,181 c. 119,036 d. 115,181
On December 31, 20X1, Roe Company leased a machine from Colt for a five-year period. Equal annual payments under the lease are $105,000 (including $5,000 annual executory costs for servicing) and are due on December 31 of each year. The first payment was made on December 31, 20X1, and the second payment was made on December 31, 20X2. The five lease payments are discounted at 10% over the lease term. The present value of lease payments at the beginning of the lease and before the first annual payment was $416,987. Roe appropriately accounts for the lease as a finance lease. Required: What is the lease liability that Roe should report in its December 31, 20X2, balance sheet? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)
On January 1, 20x1, Lock Co. enters into a 4-year lease of office equipment. The rent in 20x1 is P10,000 and this will increase by 10% annually starting on January 1, 20x2. Lock Co. pays the lessor a lease bonus of P5,000 on January 1, 20x1. Lock Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. How much is the lease expense in 20x1? c. 11,603 d. 12,853 a. 10,000 b. 11,000
On 31 December 20X1, Lessee Ltd. entered into a lease agreement by which Lessee leased a jutling machine for six years. Annual lease payments are $20,000, payable at the beginning of each lease year (31 December). At the end of the lease, possession of the machine will revert to the lessor. The normal economic life for this type of machine is 8 to 10 years. At the time of the lease agreement, jutling machines could be purchased for approximately $90,000 cash. Equivalent financing for the machine could have been obtained from Lessee's bank at 14%. Lessee uses straight-line depreciation for its jutling machines. Required: 1. Prepare a lease liability amortization table for the lease. 2. Prepare all journal entries relating to the lease and the leased asset for 20X1, 20X2, and 20X3. 3. How would the amounts relating to the leased asset and lease liability be shown on Lessee's statement of financial position at 31 December 20X4?
On January 1, 20X1, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of $13,000, beginning January 1, 20X1. At the end of the lease term on December 31, 20X5, Babson guarantees that the residual value of the automobiles will total $10,000. The lease qualifies as a finance lease. The interest rate implicit in the lease is 9%. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided. Round your intermediate calculations and final answers to the nearest whole dollar.) Required: Compute Babson's recorded finance lease liability both at inception and immediately after the first required payment. Answer is complete but not entirely correct. Amount Recorded finance lease liability at inception Recorded finance lease liability after the first payment $ 61,616 52,991