On Jan. 1, 2021, Sleepy Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be Php1,200,000 on Jan. 1, 2025, the end of the lease term. Annual lease payments are Php1.000.000 due each Dec. 31, beginning Dec. 31.

On Jan. 1, 2021, Sleepy Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be Php1,200,000 on Jan. 1, 2025, the end of the lease term. Annual lease payments are Php1.000.000 due each Dec. 31, beginning Dec. 31.

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 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.
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).
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.
Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
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, 2020 Pico Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2025, the end of the lease term. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020. The last payment is due December 31, 2024. The remaining useful life of the asset was 6 years at the commencement of the lease. The lessor used 10% as the implicit interest rate. The PV of 1 at 10% for 5 periods is .62 and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. 1. What is the net lease receivable of the lessor at the commencement of the lease? 2. what is the gross investment in the lease?
On January 1, 2020 Pico Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2025, the end of the lease term. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020. The last payment is due December 31, 2024. The remaining useful life of the asset was 6 years at the commencement of the lease. The lessor used 10% as the implicit interest rate. The PV of 1 at 10% for 5 periods is .62 and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. 1. How much is the total unearned interest income? 2. How much is the interest income for 2020?
On January 1, 2020 Pico Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2025, the end of the lease term. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020. The last payment is due December 31, 2024. The remaining useful life of the asset was 6 years at the commencement of the lease. The lessor used 10% as the implicit interest rate. The PV of 1 at 10% for 5 periods is .62. PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. Using the information of Pico Company, what is the gross investment in the lease? a. 5,000,000 b. 6,200,000 c. 3,800,000 d. 5,744,000 Still on Pico Company, how much is the total unearned interest income? a. 2,410,000 b. 1,666,000 c. 1,210,000 d. 466,000
On January 1, 2020 Pico Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2025, the end of the lease term. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020. The last payment is due December 31, 2024. The remaining useful life of the asset was 6 years at the commencement of the lease. The lessor used 10% as the implicit interest rate. The PV of 1 at 10% for 5 periods is .62. PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. What is the net lease receivable of the lessor at the commencement of the lease? a. 4,534,000 b. 3,790,000 c. 4,990,000 d. 2,590,000 Using the information of Pico Company, what is the gross investment in the lease? a. 5,000,000 b. 6,200,000 c. 3,800,000 d. 5,744,000 Still on Pico Company, how much is the total unearned interest income? a. 2,410,000 b. 1,666,000 c. 1,210,000 d. 466,000 How much is the interest…
On January 1, 2020 Pico Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2025, the end of the lease term. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020. The last payment is due December 31, 2024. The remaining useful life of the asset was 6 years at the commencement of the lease. The lessor used 10% as the implicit interest rate. The PV of 1 at 10% for 5 periods is .62 and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. What is the net lease receivable of the lessor at the commencement of the lease? What is the gross investment in the lease? How much is the total unearned interest income? How much is the interest income for 2020?
Neal Company entered into a nine-year capital lease on a warehouse on December 31, 2021. Lease payments of P520,000, which includes executory cost of P20,000 is due annually, beginning on December 31, 2022, and every December 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract was estimated at the present value of P200,000. The interest rate implicit in the lease if 9%. The present value of an ordinary annuity of 1 for nine years at 9% is 5.6. Question: - What amount should be reported as lease liability on December 31, 2021? A. 2,800,000B. 2,912,000C. 4,500,000D. 4,680,000 - What amount should be recognized initially as cost of the right of use asset? A. 2,800,000B. 3,000,000C. 3,112,000D. 4,700,000
on january 1, 2021, reindeer signed a long term lease for an office building. the term of the lease acquired gee to pay 100,000 annually, beginning december 31, 2021 and continuingfor 30 years. on january 1, 2021, the present value of the lease payments is 1,125,000 at 8% interest rate implicit in the lease. initial direct costs amount to 50,000. What is the carrying value of the right of use asset on December 31, 2021? ₱ 1,135,833 ₱ 1,125,000 ₱ 1,087,500 ₱ 1,175,000