Exam 15: Leases

On July 1,2014,Biplane Aviation leased two company jets from SeeBee Aircraft for an initial period of 12 months with a provision for a continuation on a month-to-month basis.The lease is properly classified as an operating lease.Lease payments are to be made as follows: After the first year,the rent continues at $6,000 per month.Provide the entries required to record the lease payments for the first year on the books of (1)Biplane Aviation. (2)SeeBee Aircraft.

Celestion, Inc., leased equipment to Speaker Company on January 1, 2014. The lease is for a five-year period ending January 1, 2019. The first equal annual payment of $1,200,000 was made on January 1, 2014. The cash selling price of the equipment is $5,174,552, which is equal to the present value of the lease payments at 8%. Celestion purchased the equipment for $4,300,000. -Celestion should account for this lease as

Which one of the following items is not part of the minimum lease payments from the standpoint of the lessee?

One of the four general criteria for a capital lease is that the present value at the beginning of the lease term of the minimum lease payments equals or exceeds

From the standpoint of the lessee,the minimum lease payment includes all of the following except

Bill Hopen is the president of the Eastern Sutton Railroad Company.The Eastern Sutton is a bridge line that receives traffic from the Union Pacific Railroad and the Burlington Northern railroads at Charleston,West Virginia,and hauls the freight to Denver,Colorado,for connections with other lines to points east.Recently,traffic on the Eastern Sutton has increased dramatically and the railroad is in need of additional locomotives to haul its trains.Accordingly,Bill is considering leasing locomotives to meet the demands of this increase in traffic until new engines can be ordered if the surge subsides.As the controller of the railroad,Bill has asked you to advise him as to the disadvantages associated with leasing generally.

Jefferson Financing,Inc.purchased a packing machine to lease to Puyallup Fruits.The lease qualifies as a direct financing lease and requires lease payments of $58,860 per year,payable in advance,over a ten-year period.There is no expected residual value.The fair market value of the packing machine is $330,000--the same amount paid by Jefferson to purchase the asset.The lease term begins on January 1,2014. Provide the journal entries required on Jefferson's books to (1)record the lease transaction and the first lease payment. (2)recognize interest revenue at the end of the first year.Jefferson uses a calendar-year accounting period.(Round all computations to the nearest dollar.)

On January 1,2014,O'neil,Inc.signed a noncancelable lease for a silver polishing machine.The machine has an estimated useful life of nine years.The term of the lease is a six-year term with title passing to O'neil at the end of the lease.The agreement called for annual payments of $40,000 starting at the end of the first year.Assume aggregate lease payments were determined to have a present value of $200,000,based on implicit interest of 12 percent.What amount of interest expense should O'neil report in its 2014 income statement from this lease transaction?

If the lessee and the lessor use different interest rates to account for a capital lease,then

Avionics Inc.,a dealer in machinery and equipment,leased equipment to Benchmark Products on July 1,2014.The lease is appropriately accounted for as a sale by Avionics and as a purchase by Benchmark.The lease is for a ten-year period (the useful life of the asset)expiring June 30,2021.The first of ten equal annual payments of $250,000 was made on July 1,2014.Avionics had purchased the equipment for $1,337,500 on January 1,2014,and established a list selling price of $1,687,500 on the equipment.Assume that the present value at July 1,2014,of the rent payments over the lease term discounted at 12 percent (the appropriate interest rate)was $1,582,500.What is the amount of profit on the sale and the amount of interest income that Avionics should record for the year ended December 31,2014?

Include a transfer of title in the lease agreement. Which of the strategies above will provide the desired result?

Daniels Company entered into a direct-financing lease with Old 7 Corporation,which called for seven annual rentals of $3,500 at an interest rate of 12 percent.The payments are to be paid at the end of each year.The lease also contained a bargain purchase option allowing Old 7 to purchase the asset for $2,500 after making the seventh annual rental payment. What was the cost of the asset?

Which of the following is (are)NOT correct regarding disclosure requirements lessees? I.For capital leases,future minimum lease payments in the aggregate and for each of the succeeding five years must be disclosed. II.For operating leases with initial or remaining lease terms in excess of one year,future minimum rental payments in the aggregate and for each of the five succeeding fiscal years must be disclosed. III.For capital leases,future minimum lease payments for each of the succeeding five years must be disclosed. IV. For operating leases with initial or remaining lease terms in excess of one year,future minimum lease payments for each of the five succeeding fiscal years must be disclosed.

Which of the following statements characterizes a sales-type lease?

Tammy Corporation leased used equipment to Waller,Inc.The equipment originally had a 10-year life and the lease to Waller is for the last two of the ten-year life of the asset.The lease calls for four semiannual lease payments of $2,000 to be made at the end of each year in the life of the lease.The lease agreement contains no transfer of title or bargain purchase option provisions. What is the amount of the leased asset that should be recorded on Waller's books at the beginning of the lease?

On December 31,2014,Endive Company leased a machine under a capital lease for a period of ten years,contracting to pay $100,000 on signing the lease and $100,000 annually on December 31 of the next nine years.The present value at December 31,2014,of the ten lease payments over the lease term discounted at 10 percent was $676,000.At December 31,2015,Endive's total capital lease liability is

Initial direct costs incurred by a lessor in consummating a sales-type lease are

On January 1,2014,Logan Company leased a machine to Glasgow Company.The machine had an original cost of $60,000.The lease term was five years and the implicit interest was on the lease was 15 percent.The lease is properly classified as a direct-financing lease.The annual lease payments of $17,306 are made each December 31.The machine reverts to Logan at the end of the lease term,at which time the residual value of the machine will be $4,000.The residual value is not guaranteed. At the inception of the lease,the balance of Logan's net receivable and Glasgow's liability would be

McCabe Institute leased a new machine having an expected useful life of 12 years.The noncancelable lease term is 10 years,and McCabe may exercise a purchase option at the end of the noncancelable term.The machine should be capitalized by McCabe and depreciated over

Generally accepted accounting principles require that certain lease agreements be accounted for as purchases.The theoretical basis for this treatment is that a lease of this type