Swifty Corporation agrees on January 1, 2020, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $10,500 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is rot a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Swifty' journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is 9%, and this is known to Swifty. (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 "0" decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

Swifty Corporation agrees on January 1, 2020, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $10,500 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is rot a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Swifty' journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is 9%, and this is known to Swifty. (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 "0" decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

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 12P: Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease...

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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 August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
Sunland Corporation agrees on January 1, 2025, to lease equipment from Carla Vista, Inc. for 3 years. The lease calls for annual lease payments of $20,000 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Assume that for Carla Vista, Inc., the lessor, the collectibility of the lease payments is probable, and the fair value and cost of the equipment is $178,000. Prepare Carla Vista' 2025 journal entries, assuming the company uses straight-line depreciation and no salvage value. (List all debit entries before credit entries. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the…
Indigo Corporation agrees on January 1, 2020, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $11,500 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment.Prepare Indigo’ journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is 4%, and this is known to Indigo.
Carla Vista Corporation agrees on January 1, 2025, to lease equipment from Sandhill, Inc. for 3 years. The lease calls for annual lease payments of $10,500 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Carla Vista' journal entries on January 1, 2025 (commencement of the operating lease), and on December 31, 2025. Assume the implicit rate used by the lessor is 6%, and this is known to Carla Vista. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round…
Cullumber Corporation agrees on January 1, 2025, to lease equipment from Blossom, Inc. for 3 years. The lease calls for annual lease payments of $24,000 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Assume that for Blossom, Inc., the lessor, the collectibility of the lease payments is probable, and the fair value and cost of the equipment is $198,000. Prepare Blossom 2025 journal entries, assuming the company uses straight-line depreciation and no salvage value. (List all debit entries before credit entries. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order…
Rodgers Corporation agrees on January 1, 2020, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $12,000 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Rodgers' journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is 8%, and this is known to Rodgers
Rodgers Corporation agrees on January 1, 2025, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $12,000 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Rodgers' journal entries on January 1, 2025 (commencement of the operating lease), and on December 31, 2025. Assume the implicit rate used by the lessor is 8%, and this is known to Rodgers. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers…
Grouper Corporation agrees on January 1, 2020, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $ 19,000 at the beginning of each year. The lease does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Assume that for Packers, Inc., the lessor, the collectibility of the lease payments is probable, and the fair value and cost of the equipment is $ 150,000.Prepare Packers’ 2020 journal entries, assuming the company uses straight-line depreciation and no salvage value.
The lessor company signs a sales-type lease agreement on January 1, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $63,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $44,000. The lessor expects to earn a return of 8% on its investment. What is the amount of sales the lessor will record on January 1, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 8%, 8 periods 1.85 0.54 10.64 5.75 6.21