Part 2: At January 1, 2024, Norway Company leased a machine from Yong Manufacturer. The following informationpertains to the lease:Lease termAnnual lease payments beginning January 1, 2024 and at eachDecember 31 thereafter through 2025Present value of lease payments at 6%Yong Manufacturer's implicit rate (known by Norway)3 years$80,000$226,6716%On December 31, 2026, the machine reverts back to Yong. Both companies use straight-linedepreciation/amortization. Assume useful life of machine is 5 years. Fair value of equipment is $360,000. The lease isclassified as an operating lease:• What is the balance of right-of-use asset that Norway will report in its balance sheet at December 31, 2024?

Lease:A contract in which one party allows another party to use his/her property or asset in return…

Lease term Annual lease payments beginning January 1, 2024 and at each December 31 thereafter through 2025 Present value of lease payments at 6% 3 years $80,000 $226,671 Yong Manufacturer's implicit rate (known by Norway) 6%

Lease term Annual lease payments beginning January 1, 2024 and at each December 31 thereafter through 2025 Present value of lease payments at 6% 3 years $80,000 $226,671 Yong Manufacturer's implicit rate (known by Norway) 6%

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.7E

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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.
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.
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).
Lessee and Lessor Accounting Issues The following information is available for a noncancelable lease of equipment entered into on March 1, 2019. The lease is classified as a sales-type lease by the lessor (Anson Company) and as a finance lease by the lessee (Bullard Company). Assume that the lease payments are nude at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a 3-year life. Required: 1. Record the lease (including the initial receipt of 2,000) and the receipt of the second and third installments of 2,000 in Ansons accounts. Carry computations to the nearest dollar. 2. Record the lease (including the initial payment of 2,000), the payment of the second and third installments of 2,000, and monthly depreciation in Bullards accounts. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.
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On 1 July 2022, Moose Ltd leased a plastic-moulding machine from Wolf Ltd. On 1 July 2022 the machine was in the records of Wolf Ltd at its fair value of $75 000. The lease agreement contained the following provisions. Lease term 4 years Annual rental payment, in advance on 1 July each year $20 750 Residual value at end of the lease term $7 000 Residual guaranteed by lessee $4 000 Interest rate implicit in lease 8% The machine will be depreciated by Moose Ltd on a straight-line basis. The expected useful life of the machine is 5 years. Moose Ltd intends to return the machine to the Wolf Ltd at the end of the lease term. The lease has been classified as a finance lease by Wolf Ltd. Included in the annual rental payment is an amount of $750 to cover the costs of maintenance and insurance paid for by the lessor. Initial direct costs for setting up the lease were incurred by both parties: $1 518 for Moose Ltd and $1 687 for Wolf Ltd. Required: Prepare…
On 1 July 2020, Cooper Ltd leased a plastic-moulding machine from Jersey City Ltd. The machine cost Jersey City Ltd $260,000 to manufacture and had a fair value of $302,035 on 1 July 2020. The lease agreement contained the following provisions: Lease term 4 years Annual rental payment, in advance on 1 July each year $81,500 Residual value at end of the lease term $30,000 Residual guaranteed by lessee nil Interest rate implicit in lease 8% The lease is cancellable only with the permission of the lessor. The expected useful life of the machine is 6 years. Cooper Ltd intends to return the machine to the lessor at the end of the lease term. Included in the annual rental payment is an amount of $1500 to cover the costs of maintenance and insurance paid for by the lessor. Instructions: a)Explain why the lease should be classified as a finance lease by both lessee and lessor based on the guidance provided in Accounting standard. b) Prepare the lease payment schedule for the lessee (show…
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7 Company A (lessee) has reached a lease agreement with Company B (lessor) to lease a new carpet weaving machine for five years beginning January 1, Year 1. The present value of the weaving machine is $47,945 18 The following amortization schedule was developed using the lease agreement COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease C Date January 1, Year 1 January 1, Year 1 $10,355.57 January 1, Year 2 10,355.57 January 1, Year 3 10,355.57 January 1, Year 4 10,355.57 January 1, Year 5 10,355.57 January 1, Year 6 2,500.00 Payment Interest Reduction of Lease Liability $10,355.57 $0.00 1,585.78 8,769.79 1,234.99 9,120.58 870.16 9,485.40 490.75 9,864.82 96.15 2,403.85 $54,277.83 $4,277.83 $50,000.00 Lease Liability O Debit Inventory for $2,403; Credit Lease Receivable for $2,403 Debit Lease Receivable for $2,403; Credit Inventory for $2,403 O Debit Inventory for $2,500; Credit Lease Receivable for $2,500 O Debit Lease Receivable for $2,500; Credit Inventory for…
Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $770,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease b. Operating lease: Date Jan. 1, 2023 Account To record the start of the operating lease. Dec. 31, 2023 To record the lease payment. Dec. 31, 2023 To record the lease expense. Dec. 31, 2024 To record the lease payment. Dec. 31, 2024 To record the lease expense. > > > > > > > > > > > > Debit Credit
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