Exam 15: Leases

On January 2,2014,Commack Corporation entered into a 10-year noncancelable lease requiring year-end payments of $60,000.The incremental borrowing rate for Commack is 10%.The lessor's implicit rate (which is known by Commack)is 12%.The lease contains no transfer of title or bargain purchase option provisions.The leased property has an estimated economic life of 12 years.At what amount should the lease be capitalized by Commack?

Which of the following is true regarding the deferral of sale profits on a sale-leaseback under IAS 17,"Accounting for Leases?

Keefer Inc.uses leases as a means of selling its equipment.On January 1,2014,the company leased a machine to Jeremy Manufacturing Inc.The cost of the machine to Keefer was $78,450.The fair market value (which was the sales price)was $101,184 at the time of the lease.Annual lease payments are $13,500 and are payable in advance for 12 years.At the end of the lease term,title to the machine will pass to Jeremy Manufacturing. (1)Provide the entries required on Keefer's books to record the lease and the first payment. (2)Compute the manufacturer's profit to be recognized by Keefer in the first year of the lease. (3)Provide the entry required on Keefer's books to recognize interest revenue at the end of the first year.(Round computations to the nearest dollar.)