Exam 18: Accounting for Leases

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 22,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 15,000 Bargain purchase option 5,000

The following are characteristics of a lease: Price of leased asset from manufacturer 312,100 Lease payments 75,000 Lease term 4 years Lease frequency Annual Payment timing End of year Guaranteed residual value 15,000 Interest rate implicit in the lease agreement 5\% Requirement: Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.

Which condition would result in an operating lease?

Chambers leased equipment to Montga Company on November I,2010.The terms of the lease are as follows: Lease term 10 years Economic life of leased asset 12 year Fair value of leased asset 104,000 Guaranteed residual value 10,000 Lease payments, due each Nov 1 12,000 Lessee's incremental borrowing rate 5\% Montga uses straight-line depreciation for its property,plant,and equipment. Requirements: a.Prepare the journal entries for the lease from November 1 through December 31,2010. b.You and the director of finance for Montga Company.You are concerned about the impact the lease will have on your key performance indicator,the total debt to total assets ratio.Discuss the impact the lease will have on this performance indicator.

Which statement is correct about the "guaranteed residual value"?

On January 1,2011,Rushabh Company entered a lease to rent office space.The lease requires Rushabh to pay $190,000 per year,at the end of each year,for 10 years.The lease is non-cancellable and non-renewable.The building's estimated useful life is 30 years,and its current fair value is estimated to be $6 million.Rushabh's incremental borrowing rate is 9%. Requirement: Classify this lease for Rushabh Company and record the journal entries for the first year of the lease.

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 22,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Unguaranteed residual value 15,000

Here are the terms of a lease agreement: Fair value of leased asset 65,000 Lease term 10 years Payment frequency Annual Payment timing End of year Guaranteed residual value 0 Interest rate implicit in lease (known to lessee) 4\% Lessee's incremental borrowing rate 4\% Requirement: Determine the amount of lease payment that the lessor would require to lease the asset.

Under ASPE,assuming all information is available,which rate is used by the lessee in the minimum lease calculation?

On July 1,2010,Jupiter Company leased equipment to Planet Company.The terms of the lease are as follows: Fair value of leased asset 70,000 Lease payments, due each Jul 1 12,000 Lease term 9 years Economic life of leased asset 10 years Guaranteed residual value 6,000 Lessee's incremental borrowing rate 15\% Planet uses straight-line depreciation for its property,plant,and equipment,and its year -end is December 31. Requirement: Prepare the journal entries for the lease from July 1 through December 31,2010.

Which statement is correct for the lessee?

The following are some of the characteristics of an asset available for lease: Fair value of leased asset 50,000 Lease term 3 years Payment frequency Annual Payment timing Beginning of year Guaranteed residual value 15,000 Interest rate implicit in lease (not known to lessee) 9\% Lessee's incremental borrowing rate 3\% Requirements: a.Determine the amount of lease payment that the lessor would require to lease the asset. b.Compute the present value of minimum lease payments for the lessee. c.Compute the present value of minimum lease payments for the lessor. d.Evaluate whether the lessee should classify the lease as operating or finance.

Here are the terms of a lease agreement: Fair value of leased asset 175,000 Lease term 8 years Payment frequency Annual Payment timing End of year Guaranteed residual value 15,000 Interest rate implicit in lease (known to lessee) 6\% Lessee's incremental borrowing rate 8\% Requirement: Determine the amount of lease payment that the lessor would require to lease the asset.

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 25,000 Lease term 5 Incremental rate 7\% Implicit rate (knownto lessee) 6\% Executory costs 2,000

On January 1,2011,Soldier Company sold a building to Billy Bank for $40,000,000 and immediately leased it back under a 25-year non-cancellable lease at $3,208,000 per year,payable at the beginning of each year.Billy used an implicit rate of 7% to determine the lease payments,and this rate is known to Soldier.The building had a carrying value of $12,000,000 on Soldier's books. Requirement: Assume that the lease is an operating lease for both the lessee and lessor.Prepare all necessary journal entries for 2011 for Soldier (the seller-lessee)and Billy (the buyer-lessor).Soldier will continue to depreciate the building on a straight-line basis over the lease term.

Boris Corporation started operations on March I,2009.It needs to acquire a special piece of equipment for its manufacturing operations.It is evaluating two options as follows. Option 1: Lease the equipment for 5 years.Lease payments would be $12,000 per year,due at the beginning of each fiscal year (March I).Boris's incremental borrowing rate is 8%.There is no bargain purchase or renewal option.Boris is responsible for all executory costs of operating the equipment. Option 2: Purchase the equipment for $58,000 by borrowing the full purchase amount at 4% over 5 years.This price is considered the fair value of the equipment.Payments are due at the end of each fiscal year (February 28). The equipment has a useful life of 5 years and would be depreciated on a straight-line basis.No residual value is expected to exist at the end of 5 years. Requirements: a.Calculate the present value of the lease payments (Option 1). b.Calculate the payment that would be required under the purchase option (Option 2). c.Calculate and briefly discuss the financial impact of each option on the non-current assets,total liabilities,and net income of Boris for the first year of operations.Assume all payments were made when due.Show your calculations.

What is the meaning of "minimum lease payments"?

What entry is required for the lessor in a operating lease?

Zarlon Leasing Company agrees on January 1,2012 to rent Killington Winery the equipment that Killington requires to expand its production capacity to meet customers' demands for its products.The lease agreement calls for five annual lease payments of $11 0,000 at the end of each year.Killington has identified this as a finance lease.Furthermore,the company has determined that the present value of the lease payments,discounted at 4%,is $489,700.The leased equipment has an estimated useful life of five years and no residual value.Killington uses the straight-line method for depreciating similar equipment that it owns. Requirements: a.Prepare a lease amortization schedule for this lease. b.Prepare the necessary journal entries for the first year of the lease.

Which statement is correct about the bargain purchase option (BPO)?