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Easy Composting signs a contract purchasing the right to use, manufacture and sell a proprietry home use composting process developed by EverGreen Industries. Easy Composting estimates that it will earn $120,000 annually (at the end of each year) for the next 7 years. The current market interest rate is 5% for this type of contractual agreement, however, adjustments for uncertanities related to this specific process are estimated at 3%. What is the value in use of this contract to Easy Composting?
Answer: $624,197
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- Communication S.A. signed a contract with Satellite Leasing Corporation at 1st January 2019 to lease a machine. The agreement consists in nine equal annual payments of $18,000 at the beginning of each year with an interest rate of 5%. The yearly rental payment includes $3,000 of executory costs related to taxes on the machine. There is an option to purchase the machine at the end of the lease term for $5,000. The machine has an estimated useful life of 10 years, no residual value and uses straight line depreciation method. Consider a PVIF (n=9, i=5%) of 0.6446 and PVIFA (n=9, i=5%) of 7.1078. The accounting balance day for Communication S.A. is 31 of December. Required a) Calculate the present value of the minimum lease payment. b) Prepare the journal entries for the lessee to reflect the signing of the lease agreement, payment and expenses for the year 2019. c) Prepare the journal entries for the lessor to reflect the signing of the lease agreement, payment and revenues for…Communication S.A. signed a contract with Satellite Leasing Corporation at 1st January 2019 to lease a machine. The agreement consists in nine equal annual payments of $18,000 at the beginning of each year with an interest rate of 5%. The yearly rental payment includes $3,000 of executory costs related to taxes on the machine. There is an option to purchase the machine at the end of the lease term for $5,000. The machine has an estimated useful life of 10 years, no residual value and uses straight line depreciation method. Consider a PVIF (n=9, i=5%) of 0.6446 and PVIFA (n=9, i=5%) of 7.1078. The accounting balance day for Communication S.A. is 31 of December. Required a) Calculate the present value of the minimum lease paymentTelephone Limited signed a contract with Machinery Leasing Company at 1st January 2020 to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the beginning of each year with an interest rate of 15%. The yearly rental payment includes $30,000 of executory costs related to insurance on the machine. The executory costs of $30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company is 31 of December. Required(Round all numbers to the nearest dollar) a) Discuss the nature of this lease to Telephone Limited. b) Discuss the nature of this lease to Machinery Leasing Company. c)…
- On January 1, 2023, Carla Vista Leasing Inc., a lessor that uses IFRS, signed an agreement with Rock River Inc., a lessee, for the use of a compression system. The system cost $426,000 and Carla Vista purchased it from Manufacturing Solutions Ltd. specifically for Rock River. Annual payments are made each January 1 by Rock River. In addition to making the lease payment, Rock River also reimburses Carla Vista $4,700 each January 1 for a portion of the repairs and maintenance expenditures, which cost Carla Vista a total of $6,300 per year. At the end of the five-year agreement, the compression equipment will revert to Carla Vista and is expected to have a residual value of $27,200, which is not guaranteed. Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs that have not yet been incurred by Carla Vista. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN…The lessor company signs a lease agreement on December 31, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $87,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $42,000. The lessor expects to earn a return of 10% on its investment. The equipment has a useful economic life of 10 years. What is the amount of lease receivable the lessor will record on December 31, 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 10%, 8 periods 2.14 0.47 11.44 5.33 5.87 10%, 10 periods 2.59 0.39 15.94 6.14 6.76The 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
- Zoro Company enters into a contract to sell Product A and Product B on July 1, 2020 for an upfront cash payment of P250,000. Product A will be delivered at the end of the year, and Product B will be delivered the following year. Zoro Company sells Product A for P80,000 and Product B for P240,000. 1. How many performance obligations are there in the contract? 2.what is the transaction price? 3.how much is revenue to be recognized in 2020? 4. how much is revenue to be recognized in 2021?Blossom Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $96,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Blossom expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020. Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. Prepare the journal entry at commencement of the lease for Blossom Prepare the journal entry at commencement of the lease for Sharrer. Prepare the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Blossom’s implicit rate (Sharrer’s incremental borrowing rate is 9%), and (2) Sharrer incurs…Pharoah Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Pharoah. The six-year lease requires payment of $162000 at the beginning of each year, including $24200 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Pharoah should record the leased asset at $660171. $808819. $776108. $687995.
- Callaway Golf Co. leases telecommunications equipment. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of $31,000 at the beginning of each year. The equipment has a fair value at the inception of the lease of $138,000, an estimated useful life of 8 years, and no residual value. Callaway pays all executory costs directly to third parties. Photon set the annual rental to earn a rate of return of 10%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain purchase option. How should Callaway classify this lease?Blossom Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Blossom. The six-year lease requires payment of $180000 at the beginning of each year, including $26000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessor's implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Blossom should record the leased asset at $880137. O $723169. $753006. O $845262.Cullumber Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Cullumber. The six-year lease requires payment of $171000 at the beginning of each year, including $25100 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessor’s implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Cullumber should record the leased asset at