Wildhorse Limited has signed a lease agreement with Blossom Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Blossom, the lessor of $204,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2022, and runs for 5 years. The lease requires payments of $44,875 at the beginning of each year starting January 1, 2022. At the end of the lease term, the equipment is to be returned to the lessor. Blossom' implied interest rate is 5%, while Wildhorse's borrowing rate is 6%. Wildhorse uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assuming that both companies follow ASPE:

Wildhorse Limited has signed a lease agreement with Blossom Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Blossom, the lessor of $204,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2022, and runs for 5 years. The lease requires payments of $44,875 at the beginning of each year starting January 1, 2022. At the end of the lease term, the equipment is to be returned to the lessor. Blossom' implied interest rate is 5%, while Wildhorse's borrowing rate is 6%. Wildhorse uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assuming that both companies follow ASPE:

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 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...

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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).
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.
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.
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
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.
Sarasota Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $170,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2019, and runs for 5 years. The lease requires payments of $38,073 at the beginning of each year starting January 1, 2019. At the end of the lease term, the equipment is to be returned to the lessor. Lantus' implied interest rate is 6%, while Sarasota's borrowing rate is 7%. Sarasota uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assuming that both companies follow ASPE. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Show Transcribed Text Date Jan. 1, 2019 Dec. 31, 2019 Account Titles and Explanation Equipment Acquired for Lessee (To record purchase of equipment.) (To record…
Wildhorse Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $199,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2019, and runs for 5 years. ● The lease requires payments of $45,359 at the beginning of each year starting January 1, 2019. ● At the end of the lease term, the equipment is to be returned to the lessor. ● Lantus’ implied interest rate is 7%, while Wildhorse’s borrowing rate is 8%. Wildhorse uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assume that both companies follow ASPE. (a)Determine the present value of the minimum lease payments Ans 199,000 B.) Prepare Wildhorse’s lease amortization schedule using the effective interest method. (Round answers to 0 decimal places, e.g. 5,275.) Date Payment Interest Principal Balance…
Marigold Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $196,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2019, and runs for 5 years. ● The lease requires payments of $43,896 at the beginning of each year starting January 1, 2019. ● At the end of the lease term, the equipment is to be returned to the lessor. ● Lantus’ implied interest rate is 6%, while Marigold’s borrowing rate is 7%. Marigold uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assume that both companies follow ASPE.Determine the present value of the minimum lease payments. Present value please show me how to do the calculation in exce
On January 1, 2025, Sandhill Company leased equipment to Wildhorse Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Wildhorse has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2025. 3. The fair value of the equipment on January 1, 2025, is $165,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Wildhorse depreciates all of its equipment on a straight-line basis. 5. 6. Sandhill set the annual rental to ensure a 6% rate of return. Wildhorse's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31.
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. . The lease agreement specified annual payments of $34,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. . The company had the option to purchase the machine on December 30, 2026, for $43,000 when its fair value was expected to be $58,000, a sufficient difference that exercise seems reasonably certain. . The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 12%. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease llability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare…
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
Marin Company leased equipment from Costner Company, beginning on December 31, 2024. The lease term is 4 years and requires equal rental payments of $108,765 at the beginning of each year of the lease, starting on the commencement date (December 31, 2024). The equipment has a fair value at the commencement date of the lease of $370,000, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 12%. Click here to view factor tables. Prepare Marin's 2024 and 2025 journal entries, assuming Marin depreciates similar equipment it owns on a straight-line basis. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,275.…