For the following lease,determine the minimum lease payments for the lessee. \[\begin{array} { | l | l | } \hline \text { Annual lease payment at the end of the end } & \$ 30,000 \\ \hline \text { Lease term } & 5 \\ \hline \text { Incremental rate } & 10 \% \\ \hline \text { Implicit rate (unknown to lessee) } & 8 \% \\ \hline \text { Guaranteed residual value } & 28,000 \\ \hline \end{array}\]

A) 113,723 B) 119,781 C) 131,109 D) 138,838 A) 113,723 B) 119,781 C) 131,109 D) 138,838

For the following lease,determine the minimum lease payments for the lessor. \[\begin{array} { | l | l | } \hline \text { Annual lease payment at the end of the end } & \$ 22,000 \\ \hline \text { Lease term } & 5 \\ \hline \text { Incremental rate } & 10 \% \\ \hline \text { Implicit rate (unknown to lessee) } & 8\% \\ \hline \text { Unguaranteed residual value } & 15,000 \\ \hline \text { Bargain purchase option } & 5,000 \\ \hline \end{array}\]

A) 86,502 B) 91,243 C) 95,816 D) 101,451 A) 86,502 B) 91,243 C) 95,816 D) 101,451

Here are the terms of a lease agreement: \[\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 150,000 \\ \hline \text { Lease term } & 8 \text { years } \\ \hline \text { Payment frequency } & \text { Annual } \\ \hline \text { Payment timing } & \text { End of year } \\ \hline \text { Guaranteed residual value } & 5,000 \\ \hline \text { Interest rate implicit in lease (known to lessee) } & 6 \% \\ \hline \text { Lessee's incremental borrowing rate } & 8 \% \\ \hline \end{array}\] 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.

a.Computation of required lease payments

For the following lease,determine the minimum lease payments for the lessee. \[\begin{array} { | l | l | } \hline \text { Annual lease payment at the end of the end } & \$ 22,000 \\ \hline \text { Lease term } & 5 \\ \hline \text { Incremental rate } & 10 \% \\ \hline \text { Implicit rate (unknown to lessee) } & 8 \% \\ \hline \text { Executory costs } & 5,000 \\ \hline \end{array}\]

A) 64,443 B) 67,876 C) 83,397 D) 87,840 A) 64,443 B) 67,876 C) 83,397 D) 87,840

For the following lease,determine the minimum lease payments for the lessor. \[\begin{array} { | l | l | } \hline \text { Annual lease payment at the end of the end } & \$ 22,000 \\ \hline \text { Lease term } & 5 \\ \hline \text { Incremental rate } & 10 \% \\ \hline \text { Implicit rate (unknown to lessee) } & 8 \% \\ \hline \text { Executory costs } & 5,000 \\ \hline \end{array}\]

A) 67,548 B) 71,279 C) 86,502 D) 91,243 A) 67,548 B) 71,279 C) 86,502 D) 91,243

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 \ 30,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Guaranteed residual value 28,000

(Multiple Choice)

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Question 61

For the following lease,determine the minimum lease payments for the lessor. 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

(Multiple Choice)

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Question 62

Identify whether the following characteristics/facts are relevant to a finance (capital)lease.

(Essay)

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Question 63

Which will decrease the "agency cost of leasing"?

(Multiple Choice)

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Question 64

Salisbury Creamery leases its ice cream making equipment from Little Rock Finance Company under the following lease terms: • The lease term is five years,non-cancellable,and requires equal rental payments of $56,926 due at the beginning of each year starting January 1,2011. • Upon inception of the lease on January 1,2011,Little Rock purchased the equipment at its fair value of $280,000 and immediately transferred it to Salisbury Creamery.The equipment has an estimated economic life of five years,and a $20,000 residual value that is guaranteed by Salisbury Creamery. • The lease contains no renewal options,and the equipment reverts to Little Rock Finance Company upon termination of the lease. • Salisbury's incremental borrowing rate is 4%; the rate implicit in the lease is also 4%. • Salisbury depreciates similar equipment that it owns on a straight-line basis. • Both companies have December 31 year-ends. Requirements: a.Evaluate how the lessee should account for the lease transaction. b.Evaluate how the lessor should account for the lease transaction. c.Prepare the lessee's amortization schedule for this lease. d.Prepare the journal entries on January 1,2011 for both parties. e.Prepare the journal entries on December 31,2011 and January 1,2012 for both parties.

(Essay)

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Question 65

The following are the characteristics of a lease: Fair value of leased asset 104,000 Lease payments 15,500 Lease term 10 Payment frequency Annual Payment timing End of year Guaranteed residual value None Interest rate implicit in lease 8\% Requirement: Determine the present value of minimum lease payments (MLP)and the appropriate classification of this lease for the lessee.

(Essay)

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Question 66

On January 1,2011,Travic Company entered a lease to rent office space.The lease requires Travic to pay $390,000 per year,at the end of each year,for 20 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.Travic's incremental borrowing rate is 10%. Requirement: Classify this lease for Travic Company and record the journal entries for the first year of the lease.

(Essay)

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Question 67

The following are the characteristics of a lease: Fair value of leased asset 150,000 Lease payments 30,500 30,500 Lease term 7 Payment frequency Annual Payment timing End of year Guaranteed residual value None Interest rate implicit in lease 8\% Requirement: Determine the present value of minimum lease payments (MLP)and the appropriate classification of this lease for the lessee.

(Essay)

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Question 68

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

(Multiple Choice)

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Question 69

What entry is needed by the lessor for a finance lease?

(Multiple Choice)

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Question 70

Here are the terms of a lease agreement: Fair value of leased asset 150,000 Lease term 8 years Payment frequency Annual Payment timing End of year Guaranteed residual value 5,000 Interest rate implicit in lease (known to lessee) 6\% Lessee's incremental borrowing rate 8\% 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.

(Essay)

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Question 71

Which statement is correct about "agency cost of leasing"?

(Multiple Choice)

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Question 72

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\% Executory costs 5,000

(Multiple Choice)

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Question 73

When would lessor classify the lease as an operating lease?

(Multiple Choice)

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Question 74

Which statement is correct?

(Multiple Choice)

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Question 75

What is the implicit rate?

(Multiple Choice)

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Question 76

Compare the impact of finance leases and operating leases to the balance sheet and income statement of the lessee.

(Essay)

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Question 77

Which will increase the "agency cost of leasing"?

(Multiple Choice)

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Question 78

Which entry is needed by the lessee for an operating lease?

(Multiple Choice)

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Question 79

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

(Multiple Choice)

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Question 80

For the following lease,determine the minimum lease payments for the lessee. Annual lease payment at the end of the end \ 30,000 Lease term 5 Incremental rate 10\% Implicit rate (unknown to lessee) 8\% Guaranteed residual value 28,000

For the following lease,determine the minimum lease payments for the lessor. 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

Identify whether the following characteristics/facts are relevant to a finance (capital)lease.

Which will decrease the "agency cost of leasing"?

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

What entry is needed by the lessor for a finance lease?

Which statement is correct about "agency cost of leasing"?

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\% Executory costs 5,000

When would lessor classify the lease as an operating lease?

Which statement is correct?

What is the implicit rate?

Compare the impact of finance leases and operating leases to the balance sheet and income statement of the lessee.

Which will increase the "agency cost of leasing"?

Which entry is needed by the lessee for an operating lease?

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

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