Exam 20: Accounting for Leases

One Republic Company leased equipment to Maps Company on January 1, 2014. The lease term is for a four-year period. The annual lease payments must be made on January 1 of each year, with the first payment due on January 1, 2014. Additional information relating to the lease is as follows: • The cost of equipment to One Republic was $70,000, and the normal selling price for this type of equipment is $110,000. •One Republic requires a 10% rate of return on its investments, so this is the interest rate used to calculate the annual lease payments. •The lease contains a bargain purchase option. On December 31, 2017, the lessee may acquire the equipment for $4,000. •The equipment has an expected economic life of six years. The residual value of the equipment at that time is estimated to be $1,000. •The collectibility of the lease payments is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. Required: a.Compute the amount of the equal annual lease payments. (Round your answer to the nearest dollar.) b.Classify the lease from One Republic Company's viewpoint (the lessor), stating the reason for the classification. c.Prepare a lease amortization schedule for the four-year term for One Republic. (Round amounts to the nearest dollar.) d.Prepare all entries for 2014 required by the One Republic Company.

Jennifer, Inc. entered into a five-year capital lease on December 31, 2014. This lease requires five minimum annual lease payments due on December 31 of each year. The first minimum payment was paid on December 31, 2014. This payment included which of the following?

In certain respects, IFRS provide more principles-based guidance in accounting for lease transactions. Describe the differences between IFRS and GAAP in lease capitalization criteria that demonstrate the more principles-based approach of the IFRS.

Exhibit 20-1 On January 1, 2014, Pearson Company signed a lease agreement requiring six annual payments of $60,000, beginning December 31, 2014. The lease qualifies as a capital lease. Pearson's incremental borrowing rate was 9% and the lessor's implicit rate, known by Pearson, was 10%. The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9% and 10% are 4.48592 and 4.35526, respectively. -Refer to Exhibit 20-1. The interest expense for 2014 would be (round answers to the nearest dollar)

On January 1, 2014, Madison Company signed a four-year lease requiring annual payments of $15,000 with the first payment due on January 1, 2014. The fair value of the equipment leased was $50,000. Madison's incremental borrowing rate was 6%. Actuarial information for 6% follows: Assuming the lease qualifies as a capital lease, what amount should be recorded as leased equipment under capital leases on January 1, 2014 (rounded to the nearest dollar)?

The Roger Company leased a machine at the beginning of 2014. The machine was properly capitalized by Roger at $73,734.84. A lease payment of $16,563 is due at the end of each year. The expected life of the machine is seven years, and the term of the lease is five years. At the beginning of 2019, the machine will be returned to the lessor. Both Roger and the lessor use the straight-line method of depreciation. What amount of depreciation expense should Roger record in 2014 for the machine (round calculations up to the nearest dollar)?

Lessee leased some land and buildings from Lessor. There was no transfer of ownership and no bargain purchase option. If the fair value of the land is less than a certain percentage of the total fair value of the leased property at the inception of the lease, both the lessee and the lessor may consider the land and buildings as a single unit. What is that percentage?

Which is not an advantage of leasing from a lessee's viewpoint?

A direct financing lease differs from a sales-type lease in that

A six-year operating lease requires annual rent payments of $15,000 for years 1, 2, and 3, and annual rent payments of $10,000 for years 4, 5, and 6. The agreement also requires the lessor to pay a $2,800 annual insurance premium for the leased property. Which of the following amounts should be recognized as the rental revenue in year 1 by the lessor?

Which of the following items should be included in the calculation of the lessor's gross receivable?

If the fair value of land is less than 25% of the total fair value of the leased property at the inception of the lease then the land is considered to be immaterial which means both the lessee and the lessor treat the land and building as a single unit.

For a lease that contains a bargain purchase option, minimum lease payments include

A lessee reports noncash investing and financing activity on the statement of cash flows when recording a capital lease.

A lessor enters into a sales-type lease. Which of the following statements is true if the leased asset has an unguaranteed residual value?

In a sales-leaseback transaction

The lessee should classify a lease as a capital lease if

Any initial direct costs incurred by the lessor for a sales-type lease should be

Lessees may classify a lease as one of two types: (1) capital lease, or (2) operating lease. Current GAAP provides the criteria for determining which classification is appropriate. Required: Identify the criteria that a lessee uses to classify leases as either capital or operating leases.

An operating lease should be recorded in the lessee's accounts at the inception of the lease at an amount equal to