Exam 8: Accounting for Leases

For the following lease,determine the minimum present value calculation for the lessee.

Assume that Souse agrees to lease a new machine from Laird on January 1,2017,for $40,000 per year,paid in advance (i.e.,at the beginning of the year).Executory costs are $1,000.The lease term is 11 years and the asset's useful life is 10 years.There is no bargain purchase option.The guaranteed residual value is $10,000.Which statement is correct?

Which statement is correct for the lessee?

What is the meaning of "minimum lease payments"?

What is meant by the agency cost of leasing?

Soaring Pieces Inc.creates aluminium alloy parts for commercial aircraft.In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp.The following information pertains to the leased asset and the lease agreement: The lathe machine will revert back to the lessor at end of lease term,title does not transfer to lessee at any time,and there is no bargain purchase option. Required: a.Classify this lease from the perspective of the lessor,Rapid Revolving Corp. b.Provide the amortization schedule for the lessor. c.Record the lessor's journal entries for the first year of the lease.

The following are some of the characteristics of an asset available for lease: Required: 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.

On January 1,2017,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 7.3333% 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. Required: Assume that the lease is an operating lease for both the lessee and lessor.Prepare all necessary journal entries for 2017 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.

Here are the terms of a lease agreement: Required: 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.

For the following lease,determine the minimum present value calculation for the lessee.

On January 1,2017,Granite Company entered a lease to rent office space.The lease requires $350,000 per year,at the beginning 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.The incremental borrowing rate is 5%. Required: Classify this lease and record the journal entries for the first year of the lease.

Soaring Pieces Inc.creates aluminium alloy parts for commercial aircraft.In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp.The following information pertains to the leased asset and the lease agreement: The lathe machine will revert back to the lessor at end of lease term,title does not transfer to lessee at any time,and there is no bargain purchase option. Required: a.Classify this lease from the perspective of the lessor,Rapid Revolving Corp. b.Record the lessor's journal entries for the first year of the lease. c.Record the lessor's journal entries after (not including)the last lease payment is made. d.How would the answer to (c)change if the $20,000 residual value was guaranteed by Soaring Pieces Inc.,but when the lease ended the lathe was only worth $15,000?

For the following lease,determine the minimum present value calculation for the lessee.

The following are some of the characteristics of an asset available for lease: Required: 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 capital lease using the quantitative guidelines in ASPE.

What method should be used to amortize gains or losses in a sale-leaseback transaction?

On January 1,2017,Troy Company entered a lease to rent office space.The lease requires Troy to pay $190,000 per year,at the beginning 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.Troy's incremental borrowing rate is 9%. Required: Classify this lease for Troy Company and record the journal entries for the first year of the lease.

Describe the rationale for the deferral of gains or losses on sale-leaseback transactions and accounting for these transactions.

What is the general criterion for deciding whether a lease is an operating or a finance lease?

The following are characteristics of a lease: Required: 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.

Why do lessors prefer financing lease treatment over operating lease treatment?