Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments of$1,307 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $10,00a book value of $8,000, and Blue expects a residual value of $7,500 at the end of the lease term. Blue set the lease payments with thintent of earning a 6% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate of8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not ofspecialized nature.Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)Your Answer Correct AnswerYour answer is correct.Determine the nature of the lease to both Blue and Larkspur.The lease is a/an operating lease to Larkspur.The lease is a/an operating lease to Blue. (b)Prepare all necessary journal entries for Larkspur in 2025. Larkspur uses straight-line depreciation. (List all debit entriesbefore credit entries. Credit account titles are automatically indented when the amount is entered. Do not indentmanually. Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the accounttitles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)DateAccount Titles and Explanation(To record the lease)(To record lease payment)DebitCredit

As per the given information: Annual lease rental payments - $1,307Period of lease - 3-yearEconomic…

Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments $1,307 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $10,0 a book value of $8,000, and Blue expects a residual value of $7,500 at the end of the lease term. Blue set the lease payments with intent of earning a 6% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your Answer Correct Answer Your answer is correct. Determine the nature of the lease to both Blue and Larkspur. The lease is a/an operating lease to Larkspur. The lease is a/an operating lease to Blue.

Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments $1,307 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $10,0 a book value of $8,000, and Blue expects a residual value of $7,500 at the end of the lease term. Blue set the lease payments with intent of earning a 6% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your Answer Correct Answer Your answer is correct. Determine the nature of the lease to both Blue and Larkspur. The lease is a/an operating lease to Larkspur. The lease is a/an operating lease to Blue.

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 12P: Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease...

See similar textbooks

Similar questions

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).
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.
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.
Monty Corporation leased equipment to Teal Mountain, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,350 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,600, a book value of $6,600, and Monty expects a residual value of $6,100 at the end of the lease term. Monty set the lease payments with the intent of earning a 8% return, though Teal Mountain is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
Novak Corporation leased equipment to Windsor, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $878 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 8 years, a fair value of $8,100, a book value of $6,100, and Novak expects a residual value of $5,600 at the end of the lease term. Novak set the lease payments with the intent of earning a 4% return, though Windsor is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare the entries for Novak for 2020.
Sunland Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $29.928 at the beginning of each year. The first payment is received on January 1, 2020. Sunland had purchased the machine during 2019 for $150,000. Collectibility of lease payments by Sunland is probable. Sunfand set the annual rental to ensure a 6 % rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sunland at the termination of the lease. Click here to view factor tables. (a) Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places eg. 5,275) Amount of the lease receivable
Cheyenne Corporation leased equipment to Sage Hill, Inc. on January 1, 2025. The lease agreement called for annual rental payments of $1,103 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $7,500, a book value of $5,530, and Cheyenne expects a residual value of $5,030 at the end of the lease term. Cheyenne set the lease payments with the intent of earning a 5% return, though Sage Hill is unaware of the rate implicit in the lease and has an incremental borrowing rate of 7%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e.g. 5,275.) Rental payments
The lessor company signs a sales-type lease agreement on January 1, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $63,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $44,000. The lessor expects to earn a return of 8% on its investment. What is the amount of sales the lessor will record on January 1, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 8%, 8 periods 1.85 0.54 10.64 5.75 6.21
Ayayai Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,151 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $9,900, a book value of $7,900, and Ayayai expects a residual value of $7,400 at the end of the lease term. Ayayai set the lease payments with the intent of earning a 4% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare all necessary journal entries for Kingbird in 2020
The lessor company leases a building to the lessee company on 1/1/2021. The lessee will make ten annual rental payments of $77,000 at the beginning of each year, starting from 1/1/2021. Both parties expect a residual value of $17,000 at the end of the lease term, though this amount is not guaranteed. The lessor company set the lease payments with the intent of earning a 10% return, and the lessee is aware of this rate. Suppose the lessee incurs initial direct costs of $4,360 related to the lease. What is the amount for Right-of-Use Asset the lessee will record on 1/1/2021? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 10 periods 2.59 0.39 15.94 6.14 6.76
Sheridan Company, a machinery dealer, leased a machine to Sunland Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $31,448 at the beginning of each year. The first payment is received on January 1, 2025. Sheridan had purchased the machine during 2024 for $116,000. Collectibility of lease payments by Sheridan is probable. Sheridan set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sheridan at the termination of the lease. Click here to view factor tables. (a) Compute the amount of the lease receivable. (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.) Amount of the lease receivable $
Kaluzniak Corporation leased equipment to Moeller, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,137 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $7,000, a book value of $5,000, and Kaluzniak expects a residual value of $4,500 at the end of the lease term. Kaluzniak set the lease payments with the intent of earning a 6% return, though Moeller is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Instructions a. Describe the nature of the lease to both Kaluzniak and Moeller. b. Prepare all necessary journal entries for Moeller in 2020. Moeller uses straight-line depreciation. c. How would the measurement of the lease liability and right-of-use asset be affected if, as a result…