On January 2, 2019, Chats leased an office space for an annual rental of P600,000 payable every yearend. The lease term is for five years and Chats has the option to extend the lease for another three years. The same annual rent shall be payable if the option is exercised, however, Chats did not signify to exercise said option in 2019. The implicit interest rate on the lease is 12%. On January 1, 2021, Chats decided to extend the lease when the implicit interest rate is 10%. How much is interest expense for 2021? How much is the depreciation expense for 2021? How much is the carrying amount of the lease liability as of yearend 2021? How much is the carrying amount of the right of use asset as of yearend 2021?

On January 2, 2019, Chats leased an office space for an annual rental of P600,000 payable every yearend. The lease term is for five years and Chats has the option to extend the lease for another three years. The same annual rent shall be payable if the option is exercised, however, Chats did not signify to exercise said option in 2019. The implicit interest rate on the lease is 12%. On January 1, 2021, Chats decided to extend the lease when the implicit interest rate is 10%. How much is interest expense for 2021? How much is the depreciation expense for 2021? How much is the carrying amount of the lease liability as of yearend 2021? How much is the carrying amount of the right of use asset as of yearend 2021?

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 1P: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases...

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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.
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.
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 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.
On January 2, 2019, Min leased an office space for an annual rental of P600,000 payable every yearend. The lease term is for five years and Min has the option to extend the lease for another three years. The same annual rent shall be payable if the option is exercised, however, Min did not signify to exercise said option in 2019. The implicit interest rate on the lease is 12%. On January 1, 2021, Min decided to extend the lease when the implicit interest rate is 10%. How much is interest expense for 2021? How much is the depreciation expense for 2021?
On January 2, 2019, Min leased an office space for an annual rental of P600,000 payable every yearend. The lease term is for five years and Min has the option to extend the lease for another three years. The same annual rent shall be payable if the option is exercised, however, Min did not signify to exercise said option in 2019. The implicit interest rate on the lease is 12%. On January 1, 2021, Min decided to extend the lease when the implicit interest rate is 10%. How much is the carrying amount of the lease liability as of yearend 2021? How much is the carrying amount of the right of use asset as of yearend 2021?
On January 2, 2019, Chats leased an office space for an annual rental of P600,000 payable every yearend. The lease term is for five years and Chats has the option to extend the lease for another three years. The same annual rent shall be payable if the option is exercised, however, Chats did not signify to exercise said option in 2019. The implicit interest rate on the lease is 12%. On January 1, 2021, Chats decided to extend the lease when the implicit interest rate is 10%. 1. How much is interest expense for 2021? 2. How much is the depreciation expense for 2021? 3. How much is the carrying amount of the lease liability as of yearend 2021?
On January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. Lessee paid P60,000 lease bonus to obtain the lease and security deposit of P40,000 to be refunded upon expiration of the lease. How much is the total rent income in 2021?
On January 1, 2021, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $300,000 for the machine and is leasing it to Zone for $33,000 per year, an amount that will return 8% to Calloway. The present value of the lease payments is $300,000. The lease payments are due each January 1, beginning in 2021. What is the appropriate interest entry on December 31, 2021? Multiple Choice Cash Interest revenue. Cash Interest receivable Interest receivable Interest revenue. Interest receivable Interest revenue 24,000 21,360 21,360 24,000 24,000 21,360 21,360 24,000
On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year term at an annual rental of P60,000. At inception of the lease, Ehr received P240,000 covering the first two years' rent of P120,000 and a security deposit of P120,000. This deposit will not be returned to Dent upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 1. What portion of the P240,000 should be shown as a non-current liability in Ehr's December 31, 2021 balance sheet?