Alt Corporation (the lessee) enters into an agreement with Yates Rentals Co. (the lessor) on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.(c) Alt depreciates all machinery it owns on a straight-line basis.(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.Future Value of Ordinary Annuity of 1Period 5% 6% 8% 10% 12% 11.000001.000001.000001.000001.0000022.050002.060002.080002.100002.1200033.152503.183603.246403.310003.3744044.310134.374624.506114.641004.7793355.525635.637095.866606.105106.3528566.801916.975327.335927.715618.1151978.142018.393848.922809.4871710.0890189.549119.8974710.6366311.4358912.29969911.0265611.4913212.4875613.5794814.775661012.5778913.1807914.4865615.9374317.54874 Present Value of an Annuity Due of 1 Period 5% 6% 8% 10% 12% 1 1.000001.000001.000001.000001.00000 2 1.952381.943401.925931.909091.89286 3 2.859412.833392.783262.735542.69005 4 3.723253.673013.577103.486853.40183 5 4.545954.465114.312134.169864.03735 6 5.329485.212364.992714.790794.60478 7 6.075695.917325.622885.355265.11141 8 6.786376.582386.206375.868425.56376 9 7.463217.209796.746646.334935.96764 10 8.107827.801697.246896.759026.32825Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?Lease Revenue and Depreciation ExpenseLease Revenue onlyInterest Revenue onlyDepreciation Expense only

Operating lease are the lease other than a finance lease. Under this lease, lessor do not transfers…

Answered: Which of the following lease-related…

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 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...

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Alt Corporation (the lessee) enters into an agreement with Yates Rentals Co. (the lessor) on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:

(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $574,864 are due on January 1 of each year.
(b) The fair value of the machine on January 1, 2021, is $1,600,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Alt depreciates all machinery it owns on a straight-line basis.
(d) Alt’s incremental borrowing rate is 10% per year. Alt does not have knowledge of the 8% implicit rate used by Yates.
(e) Immediately after signing the lease, Yates finds out that Alt Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

Future Value of Ordinary Annuity of 1
Period	5%	6%	8%	10%	12%
1	1.00000	1.00000	1.00000	1.00000	1.00000
2	2.05000	2.06000	2.08000	2.10000	2.12000
3	3.15250	3.18360	3.24640	3.31000	3.37440
4	4.31013	4.37462	4.50611	4.64100	4.77933
5	5.52563	5.63709	5.86660	6.10510	6.35285
6	6.80191	6.97532	7.33592	7.71561	8.11519
7	8.14201	8.39384	8.92280	9.48717	10.08901
8	9.54911	9.89747	10.63663	11.43589	12.29969
9	11.02656	11.49132	12.48756	13.57948	14.77566
10	12.57789	13.18079	14.48656	15.93743	17.54874

Present Value of an Annuity Due of 1
Period	5%		6%		8%	10%	12%
1	1.00000	1.00000	1.00000	1.00000	1.00000
2	1.95238	1.94340	1.92593	1.90909	1.89286
3	2.85941	2.83339	2.78326	2.73554	2.69005
4	3.72325	3.67301	3.57710	3.48685	3.40183
5	4.54595	4.46511	4.31213	4.16986	4.03735
6	5.32948	5.21236	4.99271	4.79079	4.60478
7	6.07569	5.91732	5.62288	5.35526	5.11141
8	6.78637	6.58238	6.20637	5.86842	5.56376
9	7.46321	7.20979	6.74664	6.33493	5.96764
10	8.10782	7.80169	7.24689	6.75902	6.32825

Which of the following lease-related revenue and expense items would be recorded by Yates if the lease is accounted for as an operating lease?

Lease Revenue and Depreciation Expense

Lease Revenue only

Interest Revenue only

Depreciation Expense only

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