Exam 15: Leases

Mercury Package Express Service properly capitalized at $93,598 a large truck it had leased on January 1,2014.The truck has a 14-year useful life.Title to the truck passes to Mercury at the end of the 12-year lease term.Mercury depreciates other similar trucks on the straight-line method with no salvage value.The lease agreement calls for annual payments of $11,500 at the beginning of each year of the lease term.The interest rate implicit in the lease (which is known by the lessee)is 8%. How much depreciation and interest expense should Mercury record for 2015? Depreciation Interest Expense Expense

Kurtain Corp.leased a new building and land from Harlow Leasing Inc.for 20 years.At the inception of the lease the building and land have fair market values of $150,000 and $20,000,respectively.The building has an expected economic life of 25 years.Which of the following statements is correct regarding Kurtain's treatment of the lease?

For 2014,Celestion should report interest revenue of

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?

NPR leased a special crane to WLRN that cost NPR $40,000.The lease term was six years and the annual rentals were $10,000 per year,payable at the end of each year.The implicit interest rate was 10 percent.NPR recognized a gross margin of

An eight-year capital lease specifies equal minimum annual lease payments.Part of this payment represents interest and part represents a reduction in the net lease liability.The portion of the minimum lease payment in the fourth year applicable to the reduction of the net lease liability should be

The lessee's balance sheet liability for a capital lease would be periodically reduced by the

Parlor Company manufactures equipment that they sell or lease.On December 31,2014,Parlor leased equipment to Liner Company for a five-year period after which ownership of the leased asset will be transferred to Liner.The lease calls for equal annual payments of $60,000,due on December 31 of each year.The first payment was made on December 31,2014.The normal sales price of the equipment is $320,000,and cost is $276,000.For the year ended December 31,2014,what amount of income should Parlor report from the lease transaction?

On March 1,2014,Hardy Corp.became the lessee of new equipment under a noncancelable six-year lease.The total estimated economic life of this equipment is ten years.The fair value of this equipment on March 1,2014,was $100,000.The lease does not meet the criteria for classification as a capital lease with respect to transfer of ownership of the leased asset,or bargain purchase option,or lease term.Nevertheless,Hardy must classify this lease as a capital lease if,at inception of the lease,the present value of the minimum lease payments (excluding executory costs)is equal to at least

Wrench Repairs acquires equipment under a noncancelable lease at an annual rental of $45,000,payable in advance for five years.After five years,there is a bargain purchase option of $75,000.The appropriate interest rate is 12 percent.What is the total present value of the lease and the first year's interest expense?

On December 1,2014,Boron Inc.signed an operating lease for a warehouse for ten years at $15,000 per year.Upon execution of the lease,Boron paid $30,000 covering rent for the first two years.How much should be shown in Boron's income statement for the year ended December 31,2014,as rent expense?

Nanotech Inc.leased a new machine having an expected useful life of 20 years from Union Co.Terms of the noncancelable 15-year lease were that Nanotech would gain title to the property upon payment of a sum equal to the fair market value of the machine at the termination of the lease.Nanotech accounted for the lease as a capital lease and recorded an asset and a liability in the financial records.The asset recorded under this lease should properly be amortized over

Current generally accepted accounting principles do not require operating leases to be shown on the balance sheet.Consider the case of Barren Company.If the operating leases of Barren Company were added to the company's liabilities at December 31,2014,the company's current ratio would decline from 0.69 to 0.57 and total debt would increase from $239 million to $1,105 million.Significant changes would also occur in the return on assets since assets would be increased and the related increase in depreciation and interest expense would exceed the rent expense currently included in the company's income statement. Required:

Pralow,Inc. ,leased an asset to Bender Corporation.The cost of the asset to Pralow was $8,000.Terms of the lease specify four-year life for the lease,an annual interest rate of 15 percent,and four year-end rental payments.The lease qualifies as a capital lease and is classified as a direct-financing lease.The asset reverts to Pralow after the fourth year,when its residual value is estimated to be $1,000.The amount of each rental payment is

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

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?

Bayou Inc.leases equipment to its customers under noncancelable leases.On January 1,2014,Bayou leased equipment costing $400,000 to Rockwell Co. ,for nine years.The rental cost was $44,000 payable in advance semiannually (January 1 and July 1),plus $2,000 semiannually for executory costs.The equipment had an estimated life of 15 years and sold for $533,025 with an estimated unguaranteed residual value of $80,000.The implicit interest rate is 12 percent. Prepare all journal entries for 2014 on Bayou's and Rockwell's books.Round all calculations to the nearest dollar.Use straight-line depreciation.

If the residual value of a leased asset is greater than the amount guaranteed by the lessee,the lessee

Which of the following is NOT a required disclosure for lessors?