Karla Salons leased equipment from Smith Company on July 1, 2024, in a finance lease. The present value of the lease payments discounted at 12% was$60,100. Ten annual lease payments of $9,500 are due each year beginning July 1, 2024. Smith Company had constructed the equipment recently for$51,500, and its retail fair value was $60,100.What amount did Smith Company record in its income statement for the reporting year ending December 31, 2024, in connection with the lease? (ignoretaxes)Multiple Choice$8,600$3,036$11,636$14,672

In financial lease, the ownership is notionally passed to the lesse.This is beacause the risk and…

Answered: 960'ES C $8,600

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 1PA: On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10%...

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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
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.
On January 1, 2018, King Inc. borrowed $150,000 and signed a 5-year, note payable with a 10% interest rate. Each annual payment is in the amount of $39,569 and payment is due each Dec. 31. What is the journal entry on Jan. 1 to record the cash received and on Dec. 31 to record the annual payment? (You will need to prepare the first row in the amortization table to determine the amounts.)
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
Ken Company leased an asset on January 1, 2020. The asset was accounted for as an operating lease for five years. The rent for the first year is P100,000 and the contract stipulates that the rent shall increase by 10% for every year thereafter. The lease agreement also provides that a lease bonus shall be paid to Ken at the start of the lease. Ken reported an Unearned Rent Revenue of P10,796 and Rent Receivable of P5,306 on its Balance Sheet for 2021 and 2022, respectively. How much is the lease bonus? How much is the rental expense to be recorded in 2022? How much should be reported in the 2022 Balance Sheet? [Indicate whether it is an asset or liability]
On December 31, 2021, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $40,000 for the truck. Its retail value is $98,099.The lease agreement specified annual payments of $26,000 beginning December 31, 2021, the beginning of the lease, and at each December 31 through 2024. Branch Motors’ interest rate for determining payments was 10%. At the end of the four-year lease term (December 31, 2025) the truck was expected to be worth $16,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line amortization or depreciation.Yard Art guaranteed a residual value of $6,000. Yard Art’s incremental borrowing rate is 10% and is unaware of Branch’s implicit rate.A $1,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expedient, Branch Motors agreed to pay this fee. It is, however, reflected in the $26,000 lease payments.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of…
On January 1, 2024, Gravel Incorporated leased construction equipment from Rocky Mountain Leasing. Rocky Mountain Leasing purchased the equipment from Bishop Incorporated at a cost of $2,069,621. Gravel's borrowing rate for similar transactions is 10%. The lease agreement specified four annual payments of $432,000 beginning January 1, 2024, the beginning of the lease, and at each December 31 thereafter through 2026. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 10% is $1,506,319. On January 1, 2026 (after two years and three payments), Gravel and Rocky Mountain agreed to extend the lease term by two years. The market rate of interest at that time was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the appropriate journal entries for Gravel Incorporated on January 1, 2026, to adjust its lease liability for the…
Sheldon Cooper Inc., an equipment dealer, leased a machine to Duffy Co. on January 1, 2022. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2022. Sheldon Cooper Inc. had purchased the machine during 2021 for $150,000. Collectibility of lease payments by Sheldon Cooper Inc. is probable. Sheldon Cooper Inc. set the annual rental to ensure a 4% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sheldon Cooper Inc. at the termination of the lease. Assume that Duffy Co. does not know the rate implicit in the lease used by Sheldon Cooper Inc., and Duffy’s incremental borrowing rate is 6%. In addition, assume that Duffy incurs initial direct costs of $11,000. Compute the amount of the lease liability for Duffy. Present value of an annuity due of 1 for 8 periods at 6% is 6.58238. Present value of an ordinary annuity of 1 for 8 periods at 6%…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $ 60,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 5%. Winn also paid a $276,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $336,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $93,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 8%. Winn also paid a $204,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $297,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $60,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 8%. Winn also paid a $120,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…

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