Calculate the lease payment Wilson Ltd. will charge Sandhill Inc assuming that there is no mark up on the fair value of the equipment. (Round present value factor calculations to 4 decimal places, e.g. 12.5124.)
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- On January 1, 2023, Cullumber Inc. enters into a 5-year non-cancellable lease with Wilson Ltd. for equipment that has an estimated useful life of 5 years and a fair value of $1,962,000. Cullumber has an incremental borrowing rate of 8% and Wilson's implicit rate is 6%. Cullumber uses the straight-line depreciation method to depreciate assets. Cullumber will make annual lease payments on January 1 of each year (with the first payment due at the beginning of the lease) based on the fair value of the equipment. The lease agreement includes a guarantee that Cullumber will take over ownership of the equipment from Wilson for a final payment of $101,000. Both companies adhere to IFRS. (a) Calculate the lease payment Wilson Ltd. will charge Cullumber Inc assuming that there is no mark up on the fair value of the equipment. (Round present value factor calculations to 4 decimal places, e.g. 12.5124.) Click here to view the factor table. Lease paymentOn January 1, 2023, Shrek Inc. enters into a seven-year non-cancellable lease with Fiona Ltd. for machinery having an estimated useful life of nine years and a fair value of $4,300,000. Shrek’s incremental borrowing rate is 8% and Fiona’s implicit rate is 6%. Shrek uses the straight-line depreciation method to depreciate assets. Shrek will make annual lease payments on January 1 of each year. The lease includes a guarantee by Shrek Inc. that Fiona Ltd. will realize $100,000 from selling the asset at the expiration of the lease, which Shrek expects to pay. Both companies adhere to IFRS. Instructions a) Calculate the lease payment Fiona Ltd. will charge Shrek (assuming no mark-up of the machinery from fair value). Round to the nearest dollar. b) Calculate the present value of the lease payments. Round to the nearest dollar. c) What kind of lease is this to Shrek Inc.? Why? d) Present the journal entries that Shrek Inc. would record during the first year of the lease. Round to the nearest…on January 1, 2023, Ivanhoe Inc enters into a 5-year non-cancellable lease with Wilson ltd for equipment that has an estimated useful life of 5 years and a fair value of $2,026,000. Ivanhoe has an incremental borrowing rate at 8% and Wilson’s implicit rate is 6%. Ivanhoe uses the straight- line depreciation method to depreciate assets . Ivanhoe will make annual lease payments on January 1 of each year (with first payment due at the beginning of the lease) based on the fair value of the equipment. The lease agreement includes a guarantee that Ivanhoe will take over ownership of the equipment from Wilson for a final payment of $97,500. Both companies adhere to IFRS A) Calculate the present value of minimum lease payments
- On January 1, 2022, Dire Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dire to make annual payments of P150,000 at the end of each year for ten years with title to pass to Dire at the end of this period. The machinery has an estimated useful life of 15 years. Dire uses the straight-line method of depreciation for all of its fixed assets. Dire accordingly accounted for this lease transaction as a finance lease. The interest rate of 8% is implicit in the lease. Dire has an option to purchase the asset at the end of lease term at P120,000 which is reasonably certain to exercise by Dire. Estimated residual value at the end of 10 years is P100,000 and end of 15 years is P80,000. Dire incurred a total of P350,000 direct cost to enter the lease. Dire should record for 2022: ANSWER: interest expense of P84,968 and depreciation expense of P88,806. Show full solutionOn January 1, 2022, Lenore Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Lenore to make annual payments of $10,000 at the beginning of each year, starting January 1, 2022. Lenore correctly accounts for the lease as a finance lease. The machine has an estimated useful life of 6 years and a $5,000 guaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Lenore uses the straight-line method of depreciation for all of its plant assets. Lenore’s incremental borrowing rate is 8% and the Lessor’s implicit rate is known to be 6%. Required: Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be at least $5,000. Compute the present value of the minimum lease payments for Lenore (lessee) assuming that the anticipated value of the machine at the end of the lease term will be $3,000.On January 1, 2022, Tiktok Company leased a heavy equipment to be used in its construction business. The following information relates to the lease: Lease term -10 years Useful life of the equipment - 12 years Annual rental payable in advance every January 1 - P240,000 Implicit interest rate - 14% Incremental borrowing rate - 12% Tiktok has the option to purchase the leased asset by paying P400,000, which approximates the fair value of the equipment on the option exercise date. (Round off the PV factor to four decimal places)What is the cost of the right-of-use asset?
- On January 1, 2021, PokemonGo Company leased equipment to Waldo Corporation under a lease agreement that qualifies as an operating lease to Waldo. The present value of the end-of-year lease payments of $166,554 discounted at 8% is $665,000. The expected economic life of the asset is seven years. The lease term is five years. What would Waldo record as amortization in 2021?On March 31, 2020, Ahlam Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Ahlam to make annual payments of $10,485 starting April 1, 2021. The machine has an estimated useful life of 6 years. Ahlam uses the straight-line method of depreciation for all of its plant assets. Ahlam’s incremental borrowing rate is 8%. The lessee is aware that the lessor used an implicit rate of 10% in computing the lease payments (present value factor for 5 periods at 8%, 3.993; at 10%, 3.791). Instructions What type of lease is this? Explain. Compute the present value of the minimum lease payments. c. Prepare all necessary journal entries for Ahlam for this lease through December 31, 2021. (Round all amounts to the nearest dollar. Include a partial amortization schedule.)On January 2, 2022, Bergify Co. entered into a 5-year lease contract for drilling equipment. Bergify recorded the lease liability for P2,400,000, which includes a present value of P100,000 for the purchase option. Bergify estimates that the fair value of the equipment at the end of its 8-year economic life will be P200,000. Bergify uses double-declining method of depreciating its assets.What amount should Bergify recognize as depreciation expense on the leased asset for 2022?
- Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year. 2. The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value. 3. Vaughn depreciates similar machinery it owns on the straight-line basis. 4. The lessee pays all executory costs. 5. Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate. 6. Vaughn has a December 31 year-end. Required: a. Indicate the type of lease that Vaughn Company has entered into and why. b. Prepare an amortization table for Vaughn in Excel. c. Prepare the journal entries on Vaughn’s books for the first two years of the lease.Leewin Brokerage enters into a lease agreement with Bumble Motors to lease an automobile with a fair value of $77,000 under a 5-year lease on December 20, 2022. The lease commences on January 1, 2023, and Leewin will return the automobile to Bumble on December 31, 2027. The automobile has an estimated useful life of 7 years. Leewin made a leas payment of $11,000 on December 20, 2022. In addition, the lease agreement stipulates annual payments of $11,000, due on January 1 of 2023, 2024, 2025, 2026, and 2027. The implicit rate of the lease is 7% and is known by Leewin. There is no purchase option, no lease incentives, no residual value guarantees, and no transfer of ownership. Leewin incurs initial direct costs of $1,600. Assuming that this is classified as an operating lease, how much interest expense is recorded in 2023? A. $2,608 B. $2,200 C. $0 OD. $3,378On January 1, 2020, Dulcinea Company enters into a ten-year noncancelable lease for equipment having an estimated useful life of 10 years and a fair value to the lessor, Mojito Corp., at the inception of the lease of $6,000,000. Dulcinea's incremental borrowing rate is 4%. Dulcinea uses the straight-line method to depreciate its assets. The lease contains the following provisions: 1. Rental payments of $687,268, payable at the beginning of each year. 2. There is a guaranteed residual value of $300,000. The expected residual value is $250,000. Required: What kind of lease is this to the two companies and why? а. b. Prepare the journal entries for both companies during the first year of the lease.