Sheridan Co. manufactures equipment that is sold or leased. On December 31, 2021, Sheridan leased equipment to Dalton for a 5-year period ending December 31, 2026, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $1065000 (including $93000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2021. Collectibility of the remaining lease payments is probable. The lease receivable before the first payment is $3500000, and cost is $2650000. For the year ended December 31, 2021, what amount of income should Sheridan realize from the lease transaction? 850000 1065000 1825000 1360000
Q: On January 1, 2020, Blossom Company leased equipment to Flynn Corporation. The following information…
A: Solution: Lease Accounting correlates to the methodology of a leasing arrangement where the lessor…
Q: Blossom Incorporated leases a piece of machinery to Ayayai Company on January 1, 2020, under the…
A: Journal entry: A journal entry is used to record day-to-day transactions of the business by…
Q: At January 1, 2021, Cafe Med leased restaurant equipment from Crescent Corporation under a nine-year…
A: Lease :— A lease is a contract outlining the terms under which one party agrees to rent an asset—in…
Q: useful life of the asset) expiring June 30, 2031. The first of 10 equal annual payments of $748000…
A: $750000 and $194080 ` Compute the profit on sale of leased asset : Particulars Amount…
Q: Fox Company, a dealer in machinery and equipment, leased equipment to Tiger Inc. on July 1, 2019.…
A: Lease accounting refers to the accounting for lease agreement both in the books of lessor and lessee…
Q: On July 1, 2020, Yum Company leased equipment to Burger Company for an 8-year period. Equal payments…
A: Lease is an agreement in which one party (lessor) provide its asset on lease to the other…
Q: Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year perlðd…
A: Solution 1: Solution 1: Annual Lease payment 36000 *PVA $1 @12% for 3 periods 2.69005…
Q: On January 1, 2020, Bensen Company leased equipment to Flynn Corporation. The following information…
A: Solution A journal is the company's primary book which records all business transaction of business…
Q: Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Option (C) is the correct answer.
Q: TWO Corporation entered into a nine-year lease on a warehouse on December 31, 2020. The estimated…
A: 1) The amount of lease liability to be reported is Present value of annual lease payments at…
Q: Hitech Company, a dealer in machinery and equipment, leased equipment to Quality Company on July 1,…
A: Interest income refers to the earnings that is generated through investment like COD (Certificate of…
Q: Michelle Company leased equipment to May Corporation on July 1, 2012 for an eight-year period…
A: Discount factor = present value of the equipment / Annual lease payment = P3,520,000 /P600,000 =…
Q: Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year period ending…
A: The lease of an asset is a contractual agreement between the lessor and lessee former is the owner…
Q: CANDY Corporation leased equipment to a lessee on April 1, 2021 for an eight-year period expiring…
A: Profit on the sale be reported for 2021 = list selling price of the equipment - carrying amount
Q: Anthony Incorporated leases a piece of machinery to Irving Company on January 1, 2020, under the…
A: a.Leases is a contract by which one party conveys land, property, services, etc. to another for a…
Q: On January 1, 2020, Evans Company entered into a non-cancelable lease for a machine to be used in…
A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of…
Q: Tamarisk Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment…
A: Journal entry: A journal entry is used to record day-to-day transactions of the business by debiting…
Q: On January 1, 2021, PokemonGo Company leased equipment to Waldo Corporation under a lease agreement…
A: Solution:- Calculation of the cost of amortization in 2021 as follows under:-
Q: Meg Company leased equipment from Wee Company on July 1, 2021 for an eight-year period expiring June…
A: Under sales type lease, selling profit or loss is = Fair Value of the underlying asset - Carrying…
Q: ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30,…
A: ABC would record 2 revenues in the year ended December 31, 2020, namely Sales Revenue on the date of…
Q: Cullumber Incorporated leases a piece of machinery to Bramble Company on January 1, 2020, under the…
A: As per the given information, the lease of the equipment is as follows: This is a capital lease for…
Q: CUPID Corporation leased equipment to a lessee on April 1, 2021 for an eight-year period expiring…
A: Profit on the sale be reported for 2021 = list selling price of the equipment - carrying amount
Q: On January 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best…
A: ROU Asset shall be initially measured at Cost which includes, Initial Measurement of Lease…
Q: .Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Ans. The expenses related to negotiating and arranging the lease will be treated as an indirect cost…
Q: Fox Company, a dealer in machinery and equipment, leased equipment to Tiger Inc. on July 1, 2019.…
A: Lease is an agreement or contract between two parties in which one party provides its asset for use…
Q: ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30,…
A: Present Value of Lease receivables on July 1, 2020 = (Annual lease payment x Present value factor…
Q: On January 1, 2019, Zendaya Corp. signed a five-year non-cancelable lease for machine with Cassie…
A: It is pertinent to note that lease liability includes all payments made on the lease discounted…
Q: On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The…
A: 1. Calculate pre-tax lease reported in balance sheet At December 31, 2021: Working:
Q: On December 31, 2021, Maroon Co. leased an equipment with a cot of P2,000,000 to Green Co. for 5…
A:
Q: Required 1 Required 2 Required 3 Prepare an amortization schedule that describes the pattern of…
A: Amortization: Paying off debt with installments, where the installments can be either a series of…
Q: Michael Company leased equipment to Hay Corporation on July 1, 2012 for an eight-year period…
A: Discount factor = present value of the equipment / Annual lease payment = P3,520,000 /P600,000 =…
Q: On January 1, 2021, Shadow Industries (lessor) leased equipment to Bone Co. (lessee) for a 5-year…
A: The right of use asset is measured at the present value of annual lease payments.
Q: Zinc Co. leased equipment from Helium Company on July 1, 2018 for an 8- year period expiring June…
A: Lease refers to a contract under which the owner of a property allows another party to use the…
Q: On January 1, 2020, Cullumber Company leased equipment to Flynn Corporation. The following…
A: Lease: A contractual agreement for an asset between two parties. The parties involved are lessee and…
Q: On January 1, 2021, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year…
A: A lease is a written agreement that indicating the conditions within which a lessor acknowledges to…
Q: ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30,…
A: Present Value of Lease receivables on July 1, 2020 = (Annual lease payment x Present value factor…
Q: The Lessor Company leases equipment to the Lessee Company on January 1, 2020. The lease is…
A: Lessor refers to a person who gives equipment on lease to another person. He is the owner of the…
Q: Oriole Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2020, to lease…
A: Annual lease payments refers to the annual rental amount that is being paid every year by the lessee…
Q: On January 1, 2020, Flower Corp. enters into an agreement with Nicki Rentals Inc. to lease a machine…
A: Lease means to give on rent and lessor refers to the seller and lesse refers to the buyer.Lease…
Q: Prepare an amortization schedule that describes the pattern of interest expense for Federated over…
A: workings:
Q: The Lessor Company leases equipment to the Lessee Company on January 1, 2020. The lease is…
A: The correct answer for the above mentioned question is given in the following steps for your…
Q: Michael Company leased equipment to Hay Corporation on July 1, 2012 for an eight-year period…
A: Gross profit from this sale at the inception of the lease = cash selling price of the equipment -…
Q: On December 31, 2019, Sin Company signed a five-year, non-cancelable lease for a machine with…
A: Right of Use Asset (ROU) is calculated as present value of lease payments. This will be recorded in…
Q: Scupper Farms, the lessee, and Tyrrell Equipment, the lessor, sign a lease agreement on January 1,…
A: 1.
Q: Dream Company leased equipment for its nine-year economic life, agreeing to pay P500,000 at the…
A: Answer - As per IFRS 116 lease - lease liability is calculated on commencement date of Lease i.e…
Q: July 1, 2019, of the rent payments over the lease term, discounted at 12% (the appropriate interest…
A: Lease is an agreement or contract between two parties in which one party provides its asset for use…
Q: On January 1, 2021, PokemonGo Company leased equipment to Waldo Corporation under a lease agreement…
A: Amortization is the reduction in the value of intangible asset over a period of time.
Sheridan Co. manufactures equipment that is sold or leased. On December 31, 2021, Sheridan leased equipment to Dalton for a 5-year period ending December 31, 2026, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are $1065000 (including $93000 executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2021. Collectibility of the remaining lease payments is probable. The lease receivable before the first payment is $3500000, and cost is $2650000. For the year ended December 31, 2021, what amount of income should Sheridan realize from the lease transaction?
850000
1065000
1825000
1360000
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
- 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.Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
- 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.Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.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.
- On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.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 methodLessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
- On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.Lessor Accounting Issues Ramsey Company leases heavy equipment to Terrell Inc. on March 1, 2019, on the following terms: 1. Twenty-four lease rentals of 2,950 at the beginning of each month are to be paid by Terrell, and the lease is noncancelable. 2. The cost of the heavy equipment to Ramsey was 55,000. 3. Ramsey uses an implicit interest rate of 18% per year and will account for this lease as a sales-type lease. Required: Prepare journal entries for Ramsey (the lessor) to record the lease contract on March 1, 2019, the receipt of the first two lease rentals, and any interest income for March and April 2019. (Round your answers to the nearest dollar.)