Exam 15: Leases

The costs that (a) are associated directly with consummating a lease, (b) are essential to acquire the lease, and (c) would not have been incurred had the lease agreement not occurred, are referred to as:

XYZ Company leased equipment to West Corporation under a lease agreement that qualifies as a finance lease to West but not as a result of a bargain purchase option or a title transfer. The present value of the lease payments is $600,000. The expected economic life of the asset is seven years. The lease term is five years. Using the straight-line method, what would West record as annual amortization?

The lease agreement and related facts indicate the following: a. Leased equipment had a retail cash selling price of $900,000. Its useful life was five years with no residual value. b. The lease term is five years and the lessor paid $795,000 to acquire the equipment (thus, selling profit). c. Lessor's implicit rate when calculating annual lease payments was 8%. d. Annual lease payments beginning January 1, 2018, the beginning of the lease, were $208,713. e. The costs of legal fees incurred by the lessor for executing the completed lease transaction were $22,500. Required: Round your answers to the nearest whole dollar amounts. Prepare the appropriate journal entries for the lessor to record: 1. The lease and the initial payment at its commencement. 2. Any journal entry(s) necessary at December 31, 2018, the fiscal year-end.

Titanic Corporation leased executive limos under terms of a $20,000 first payment upon signing the lease and four equal annual payments of $30,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Of the five criteria for a finance lease, which one is not applied if the lease begins "at or near the end" of the economic life of the underlying asset?

On December 31, 2018, Perry Corporation leased equipment to Admiral Company for a five-year period. The annual lease payment, excluding nonlease components, is $40,000. The interest rate for this lease is 10%. The payments are due on December 31 of each year. The first payment was made on December 31, 2018. The normal cash price for this type of equipment is $125,000 while the cost to Perry was $105,000. For the year ended December 31, 2018, by what amount will Perry's earnings increase due to this lease (ignore taxes)?

Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc. on January 1, 2018. Scape produced the equipment at a cost of $5,000,000. Required: Prepare appropriate entries for both User and Scape from the beginning of the lease through the second rental payment on April 1, 2018. Depreciation and amortization are recorded at the end of each fiscal year (December 31). Round your answers to the nearest whole dollar amounts.

Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years. -What amount would the lessee record as annual amortization on the asset using the straight-line method, assuming no residual value?

Terms of a lease agreement and related facts are: a. Leased asset has a retail cash selling price of $200,000. Its useful life is six years. b. Annual lease payments at the beginning of each year are $41,746, beginning January 1. The lease term is six years. c. Lessor's interest rate when calculating annual lease payments was 9%. d. Direct costs by the lessor of legal and commissions to execute the completed lease are $4,124. Required: Round your answers to the nearest whole dollar amounts. Prepare the appropriate journal entries for the lessor to record the lease, the initial lease payment at its commencement, and at the December 31 fiscal year-end under each of the following two independent assumptions: 1. The lessor recently paid $200,000 to acquire the asset. 2. The lessor recently paid $170,000 to acquire the asset.

Python Company leased equipment from Hope Leasing on January 1, 2018. Hope recently purchased the equipment at a cost of $222,664. Other information: Lease term 3 years Annual payments \ 80,000 on January 1 each year Life of asset 3 years Fair value of asset \ 222,664 Implicit interest rate 8\% Incremental rate 8\% There is no expected residual value. Required: Prepare appropriate journal entries for Python for 2018. Assume straight-line depreciation and a December 31 year-end. Round your answers to the nearest whole dollar amounts.

On September 1, 2018, Custom Shirts Inc. entered into a lease agreement appropriately classified as an operating lease. The lease term is three years. The annual payments by Custom Shirts are (a) $20,000 for year 1, (b) $24,000 for year 2, and (c) $28,000 for year 3. How much total lease expense will Custom Shirts recognize for 2018?

In accounting for operating leases, the lessee will recognize amortization on the leased asset.

From the perspective of the lessee, leases may be classified as either:

Karla Salons leased equipment from Smith Co. on July 1, 2018, in a finance lease. The present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due each year beginning July 1, 2018. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $80,000. - What amount did Smith Co. record in its income statement for the reporting year ending December 31, 2018, in connection with the lease? (ignore taxes.)

On January 1, 2018, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $240,000 for the machine and is leasing it to Zone for $34,000 per year, an amount that will return 10% to Calloway. The present value of the lease payments is $240,000. The lease payments are due each January 1, beginning in 2018. What is the appropriate interest entry on December 31, 2018?

Discuss the financial statement disclosure requirements for all leases entered into by the lessor.

Use the information below to answer the following questions. On December 31, 2017, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2023. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: -What is the balance of the lease liability on Reagan's December 31, 2019, balance sheet (after the third lease payment is made)?

If the lessor records deferred rent revenue at the beginning of a lease term, the lease must:

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: • Lease payments: $2,466,754 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022. • Lease term: five years (10 semiannual payments). • No residual value; no purchase option. • Economic life of equipment: five years. • Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. • Fair value of the computers at January 1, 2018: $20 million. -Technoid would account for this as:

Here is a lease amortization schedule for Jedi Corporation, the lessee. Total interest over term of lease. ?? Annual straight-line amortization on the right-of-use asset. ?? Required: Round your answers to the nearest whole dollar amounts. (a) Calculate the effective interest and the decrease in balance for the first lease payment. (b) Calculate the initial lease obligation above. (c) Calculate the annual amortization amount. (Round to the nearest dollar). (d) Calculate the annual interest rate. (e) Calculate the missing amounts for rows for payments 10 and 11. (f) Calculate the total effective interest over the term of the lease.