On December 31, 2019, Sage Hill Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Sage Hill to make annual payments of $8,026 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,900 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Sage Hill uses the straight-line method of depreciation for all of its plant assets. Sage Hill’s incremental borrowing rate is 9%, and the lessor’s implicit rate is unknown. What type of lease is this?
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On December 31, 2019, Sage Hill Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Sage Hill to make annual payments of $8,026 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,900 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Sage Hill uses the straight-line method of
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- 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.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 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
- Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line methodOn March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?On December 31, 2019, Kingbird Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Kingbird to make annual payments of $7,924 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Kingbird uses the straight-line method of depreciation for all of its plant assets. Kingbird’s incremental borrowing rate is 2%, and the lessor’s implicit rate is unknown. Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Present value of the lease payments $enter the Present value of the lease payments in dollars Prepare all necessary journal entries for Kingbird for this lease through December 31, 2020. (Record journal entries in the order…
- On December 31, 2019, Windsor Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Windsor to make annual payments of $8,092 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4.900 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Windsor uses the straight-line method of depreciation for all of its plant assets. Windsor's incremental borrowing rate is 15%, and the lessor's implicit rate is unknown. Prepare all necessary journal entries for Windsor for this lease through December 31, 2020. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places eg. 5,275.) Date Account Titles and Explanation Debit Credit (To record the lease) (To record first lease payment) (To record amortization of the…On December 31, 2019, Windsor Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Windsor to make annual payments of $9,353 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,800 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Windsor uses the straight-line method of depreciation for all of its plant assets. Windsor’s incremental borrowing rate is 15%, and the lessor’s implicit rate is unknown.Click here to view factor tables. Incorrect answer iconYour answer is incorrect. What type of lease is this? This is a/an select a type of lease Compute the present value of the lease payments. Prepare all necessary journal entries for Windsor for this lease through December 31, 2020On December 31, 2019, Shamrock Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Shamrock to make annual payments of $7,909 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Shamrock uses the straight-line method of depreciation for all of its plant assets. Shamrock’s incremental borrowing rate is 8%, and the lessor’s implicit rate is unknown. Prepare all necessary journal entries for Shamrock for this lease through December 31, 2020. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit
- On December 31, 2019, Marin Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Marin to make annual payments of $8,566 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Marin uses the straight-line method of depreciation for all of its plant assets. Marin’s incremental borrowing rate is 4%, and the lessor’s implicit rate is unknown.Click here to view factor tables. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf a) Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Present value of the lease payments $enter the Present value…On December 31, 2019, Shamrock Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Shamrock to make annual payments of $7,909 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Shamrock uses the straight-line method of depreciation for all of its plant assets. Shamrock’s incremental borrowing rate is 8%, and the lessor’s implicit rate is unknown. (a.)What type of lease is this? This is a/an _________ lease. (operating / finance) (b.) Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Present value of the lease payments $ (c.) Prepare all necessary journal entries for Shamrock for this lease through…On December 31, 2019, Splish Brothers Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Splish Brothers to make annual payments of $8,148 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Splish Brothers uses the straight-line method of depreciation for all of its plant assets. Splish Brothers’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown. Prepare all necessary journal entries for Splish Brothers for this lease through December 31, 2020. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit choose a…