On January 1, 20x7, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of P13,000 beginning January 1, 20x7. Babson expects to pay P10,000 on the residual value guarantee. The interest rate implicit in the lease is 9%. Babson's recorded lease liability on initial recognition is a. 48,620 b. 44,070 c. 35,620 d. 31,070
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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.Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?On January 1, 20x1, Entity X (Customer) enters into a 4-year lease of equipment with Entity Y (supplier). The annual rent is P220,000 payable at the END of each year. The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing rate is 12%. Entity X uses the straight-line method of depreciation. The relevant present value factors are as follows: PV of an ordinary annuity of P1 @ 10%, n=4 3.16987 PV of an ordinary annuity of P1 @ 12%, n=4 3.03735 Requirements: 1.How much is the lease liability to be recognized by Entity X on initial recognition? 2.How much is the annual depreciation on the right-of-use asset? 3.Assume the lease is a finance lease. How much is the net investment in the lease to be recognized by Entity Y on initial recognition? 4.Assume the lease is an operating lease. How much is the lease (rent) income in 20x1? 5.Assume the lease qualifies for accounting as…
- Figy Co entered into a 4-year lease agreement on 1 January 20X5. The agreement meets the definition of a lease in accordance with IFRS 16. An initial payment of $160,000 was made on 1 January 20X5 followed by three annual payments on 1 January of $150,000 each. The rate implicit in the lease is 10%. Figy Co incurred initial direct costs of X2 to set up the lease. Required: 1. Give your own X2 then calculate the cost of the right-of-use asset as at 1 January 20X5? 2. What is the carrying amount of the lease liability at 31 December 20X6? 3. What amount will be charged to the statement of profit or loss in respect of this asset for the year ended at 31 December 20X6? 4. Prepare necessary accounting entries related to this lease agreement for the year ended at 31 December 20X5.On January 1, 20X1, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of $13,000, beginning January 1, 20X1. At the end of the lease term on December 31, 20X5, Babson guarantees that the residual value of the automobiles will total $10,000. The lease qualifies as a finance lease. The interest rate implicit in the lease is 9%. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided. Round your intermediate calculations and final answers to the nearest whole dollar.) Required: Compute Babson's recorded finance lease liability both at inception and immediately after the first required payment. Answer is complete but not entirely correct. Amount Recorded finance lease liability at inception Recorded finance lease liability after the first payment $ 61,616 52,991On January 1, 20x1, ABC Co. enters into a 4-year lease of office equipment. Annual rental payable at the end of each year is P12,000. As inducement in entering into the lease, the lessor makes the first 3 months of the lease as rent-free. ABC Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. Requirement: Provide the journal entries.
- On January 1, 20x1, Lock Co. enters into a 4-year lease of office equipment. The rent in 20x1 is P10,000 and this will increase by 10% annually starting on January 1, 20x2. Lock Co. pays the lessor a lease bonus of P5,000 on January 1, 20x1. Lock Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. How much is the lease expense in 20x1? c. 11,603 d. 12,853 a. 10,000 b. 11,000At the beginning of the current year, CPA Co, leased a machine to CMA Co. The machine had an original cost of P6,000,000. The lease term was five years and the implicit interest rate on the lease was 15%. The lease is properly classified as a direct financing lease. The annual payments of P1,750,000 are made each December 31. The machine reverts to lessor at the end of the lease term, at which the residual value of the machine will be P275,000 which is unguaranteed.Required: Write answer without peso sign withcommas.What is the total financial revenue?2. On August 31, 2018, Simmons Inc. leased warehouse equipment from Covington Corp. The lease agreement calls for Simmons to make semiannual lease payments of $50,000 over a 7-year lease term, payable at August 31 and February 28, with the first payment on August 31, 2018. Simmons' incremental borrowing rate is 11%, the same rate Covington used to calculate lease payment amounts. Covington purchased the warehouse equipment at a cost of $700,000 on August 31, 2018 with an expected useful life of 10 years and no salvage value. The fiscal year for both Simmons and Covington ends on December 31. Required: a. What are the present value of the lease payments on August 31, 2018? b. Starting on August 31, 2018 prepare all journal entries related to the lease that Simmons would have to make through December 31, 2020. c. Starting on August 31, 2018 prepare all journal entries related to the lease that Covington would have to make through December 31, 2020. d. What amounts related to the lease…
- On January 1, 2021, Wise Corporation leased equipment to Slim Company. The lease term is eight years. The first payment of $675,000 was made on January 1, 2021. The equipment cost Wise Corporation $3,600,000. The present value of the lease payments is $3,961,183. The lease is appropriately classified as a sales-type lease. suming the interest rate for this lease is 10%, how much interest revenue will Wise record in 2022 on this lease? A. $261,000. B. $293,980. C. $325,350. D. $328,615.On January 1, 2021, Company A (lessor) enters into a lease of equipment with Company B. Information on the lease is as follows: Cost of equipment - P320,183 Useful life of equipment - 5 years Lease term - 4 years Annual rental payable at the beginning of each year? Company A incurred initial direct costs of P20,000 in negotiating the lease. The implicit interest rate is 12%. How much is the annual rent?On January 1, 20x1, Entity Y leases out a piece of equipment to Entity X. Information on the lease is as follows: Lease term 3 years Annual rent payable at the end of each year 100,000 Interest rate implicit in the lease 10% The lease provides for the transfer of ownership of the equipment to the lessee at the end of the lease term. What total amount of finance income will Entity Y recognize over the lease term?