Prepare an amortization table for the five-year term of the lease. Prepare journal entries in the books of Generous, Inc. for years 2022 and 2023 to record all transactions relating to the lease. Prepare the journal entry at the end of the lease term to record the transfer of the leased automobiles to the lessor.
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- Prepare an amortization table for the five-year term of the lease.
- Prepare journal entries in the books of Generous, Inc. for years 2022 and 2023 to record all transactions relating to the lease.
- Prepare the
journal entry at the end of the lease term to record the transfer of the leased automobiles to the lessor.
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- 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 methodDetermining 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.
- 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.An entity acquired an asset costing P3,165,000. The asset is leased on January 1, 2019 to another entity. Five annual lease payments are due each December 31, beginning December 31, 2019. The unguaranteed residual value of the asset at the end of the lease term on December 31, 2013 is P500,000. The asset will revert to the lessor at the end of the lease term. The lessor’s implicit interest rate is 12%. The PV of 1 at 12% for 5 periods is .57 and the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What is the annual rental payment? 879,166 740,128 800,000 500,000On December 31, 2019, Lucas Corporation leased a building from Fort Company for seven-year period expiring December 31, 2026. Equal annual payments of P2,000,000 are due on December 31 of each year. beginning with December 31, 2019. The lease is properly classified as a finance lease on Lucas 's books. At inception of the lease, Lucas paid P350,000 as commission to agent and estimated that P400,000 will be paid to restore the property at the end of lease term. The building has a useful life of 20 years at inception of the lease. Lucas guaranteed a residual value of P200,000 at the end of lease term. Assuming all payments are made on time and the rate implicit and effective is at 12%, the amount that should be reported by Lucas Corporation as the lease liability on its December 31, 2022 financial statement is? How much is the balance of the right-of-use asset as of December 31. 2022? O P8,715,380 O P6,282.414 O P7,803,018 O P9.759,803
- On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Nevels. ● . Negotiations led to the lessee guaranteeing a $152,000 residual value. Equal payments under the lease are $206,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Nguyen is aware that Nevels used a 8% interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) ● Required: 1. Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2024, to record the lease. 2. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2024, related to the lease. The equipment cost Nevels $794,023 and has an expected economic life of five years. Nevels expects the residual value on December 31, 2027, will be $106,000.…On January 1, 2020, Perriman Company transferred equipment for cash and leased it back. As seller-lessee, Perriman retained the right to substantially all of the remaining use of the equipment. The term of the lease is 8 years. Instructions a. What is the major issue related to sale-leaseback accounting? b. 1. How should Perriman account for the sale portion of the sale-leaseback transaction at January 1, 2020? 2. How should Perriman account for the leaseback portion of the sale-leaseback transaction at January 1, 2020?Joy Company acquired an asset costing P5,239,000. The asset is leased on January 1, 2020 to another entity. Five annual lease payments are due each January 1, beginning January 1, 2020. The unguaranteed residual value of the asset at the end of the lease term on December 31, 2024 is P2,000,000. The asset will revert to Joy Company at the end of the lease term. The lessor's implicit rate is 8%. What is the annual rental payment?
- YOU Leasing Company agrees to lease machinery to ME Corporation on January 1, 2019. The following information relates to the lease agreement.1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.2. The cost of the machinery is $1,050,000, and the fair value of the asset on January 1, 2019, is $1,400,000. 3. At the end of the lease term, the asset reverts to the lessor and has a quaranteed residual value of $100,000. ME estimates that the expected residual value at the end of the lease term will be $100,000. ME depreciates all of its equipment on a straight-line basis.4. The lease agreement requires equal annual rental payments, beginning on January 1, 2019.5. YOU desires a 5% rate of return on its investments. ME’s incremental borrowing rate is 6%, and it is impracticable to determine the lessor’s implicit rate. Required:(Assume the accounting period ends on December 31)a. Explain how long ME will depreciate the asset!…On January 1, 2022, ABC leased an automobile for use their CEO. The following are the terms under the lease contract:- The lease contract requires ABC to make five annual payments of P400,000 beginning January 1, 2022. At the end of the lease term, December 31, 2026, ABC guarantees that the residual value of the automobile will total P250,000. - The property will be reverted to the lessor at the end of the lease term. - The estimated useful life of the automobile is four years and ABC uses straight-line method for all its assets. - ABC incremental borrowing rate is 8%. The rate is implicit in the lease, which is known to ABC Inc., at 11%.What amount of depreciation expense should be recognized by the ABC at the end of December 2022?How much is the Lease liability to be reported in the statement of Financial Position for the year ended December 31, 2022 by ABC?On December 31, 2021, Take it Easy Co. Leased an equipment with a cost of P1,000,000 to DesperadoCo. for4years which is also the useful life of the asset. The lease agreement specificies equal annual paymentofP261,694 beginning on December 31, 2021. At the end of the lease term, the equipment will revert toTakeitEasy Co. A third party related to the lessee guarantees residual value of the equipment amountingtoP150,000.The rate implicit on the lease is 11%. 1. How much is the total interest income to be earned over the lease term?a. P46,775 c. P196,775b. P103,225 d. P1,172,9272. How much is the interst income in 2022?a. P24,597 c. P81,214b. P61,361 d. P110,000