On January 1, 2019, Steward Co. signed an 8-year non-cancelable lease for a new, machine, requiring P60, 000 annual payments at the beginning of the year. Stewards borrowing rate is 10%. Present value of annuity of 10% for eight periods is 5.335 while the present value of 10% for eight periods in advance is 5,868. The machine has an estimated life of 12 years with no salvage value. Title passes to Steward at the lease expiration date. Steward used straight-line depreciation for all its plant assets. For 2019, Steward should record depreciation expense for the leased machine at 26,675 29,340 40,013 44,010

On January 1, 2019, Steward Co. signed an 8-year non-cancelable lease for a new, machine, requiring P60, 000 annual payments at the beginning of the year. Stewards borrowing rate is 10%. Present value of annuity of 10% for eight periods is 5.335 while the present value of 10% for eight periods in advance is 5,868. The machine has an estimated life of 12 years with no salvage value. Title passes to Steward at the lease expiration date. Steward used straight-line depreciation for all its plant assets. For 2019, Steward should record depreciation expense for the leased machine at 26,675 29,340 40,013 44,010

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boaters incremental borrowing rate is 9%. The asset has a useful life of 7 years. Prepare the journal entry for Boater to record the issuance of the note on January 1.
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
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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.)
16. On January 1, 2020, Roque Company purchased a new machine for P6,000,000 for the purpose of leasing it. Themachine had an estimated 10-year life. On April 1, 2020, the Roque leased the machine to a lessee for threeyears at a monthly rental of P400,000. The lessee paid the rental for one year of P4,800,000 on April 2020 andadditionally paid P600,000 to the lessor as a lease bonus to obtain the three-year lease. On April 1, 2020, Roquepaid P100,000 to a broker as a finder fee.What is the net rental income of Roque Company for 2020?
Blanket Co. purchased an equipment on January 1, 2020 for $500,000 for lease purposes. It has an estimated useful life of 10 years without salvage value. The company leased the machine on March 31, 2020 at $8,000 monthly for four years. Blanket Co. required security deposit of $100,000 on March 31, 2020 which shall be returned to the lessee upon lease expiration. What amount should be credited to rent income upon receipt of the $100,000 security deposit?
On January 1, 2021, Veronica Company negotiated a 15-year lease for a building with useful life of 20 years. Before occupancy, the lessee incurred leasehold improvement of P600,000 with useful life 5 years. The lessee is required to restore the building upon expiration of the lease. The present value of estimated cost of restoration is P644,000 discounted at 7%. Annual payments of P1,000,000 are payable to the lessor on December 31 of each of the 15 years of the lease term. The lease was negotiated to assure the lessor a 10% rate of return. PV of an ordinary annuity of 1 at 10% for 15 periods PV of an annuity of 1 in advance at 10% for 15 periods 7.606 8.367 Required: Prepare journal entries on the books of Veronica Company for 2021.
Maris Co. purchased a machine on January 1, 2020, for $2,500,000 for the express purpose of leasing it. The machine is expected to have a five-year life, no salvage value, and be depreciated on a straight-line monthly basis. On April 1, 2020, under a cancelable lease, Maris leased the machine to Dunbar Company for $750,000 a year for a four-year period ending March 31, 2024. Maris incurred total maintenance and other related costs under the provisions of the lease of $25,000 relating to the year ended December 31, 2020. Harley paid $750,000 to Maris on April 1, 2020. Instructions [Assume the operating method is appropriate for parts (a) and (b).] (a) Under the operating method, what should be the income before income taxes derived by Maris Co. from this lease for the year ended December 31, 2020? (b) What should be the amount of rent expense incurred by Dunbar from this lease for the year ended December 31, 2020?
On January 2, 2018, Hernandez, Inc. signed a ten-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of P300,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of P1,800,000, based on implicit interest of10%. In its 2018 income statement, what amount of interest expense should Hernandez report from this lease transaction?
Rick Kleckner Corporation recorded a right-of-use asset for $300,000 as a result of a finance lease on December 31, 2019. Kleckner's incremental borrowing rate is 8%, and the implicit rate of the lessor was not known at the commencement of the lease. Kleckner made the first lease payment of $48,337 on December 31, 2019. The lease requires eight annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Kleckner's December 31, 2020, entries.
On January 2, 2021, Blossom, Inc. signed a 10-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $280000 starting at the beginning of the first year, with title passing to Blossom at the expiration of the lease. Blossom treated this transaction as a finance lease. The drill press has an estimated useful life of 15 years, with no salvage value. Blossom uses straight-line amortization for all of its plant assets. Aggregate lease payments were determined to have a present value of $1720479, based on implicit interest of 10%.In its 2021 income statement, what amount of amortization expense should Blossom report from this lease transaction? $280000 $114699 $142699 $172048
Magnitude Ltd acquired an item of plant under a three-year lease on January 1, 2019. The remaining useful life of the plant is seven years and there are no transfer of the asset and no purchase option at the end of the lease. The rental payments are $10,000,000 per annum payable in arrears for the three years on December 31 each year and the company incurs initial direct costs of $20,000 and receives lease incentives of $16,000. The interest rate implicit in the lease is 8% per annum. Required: a. Prepare the relevant journal entries in the first year of the lease. b. Prepare the relevant financial statement extracts in the first year of the lease