Question
In: Accounting
In a lease that is recorded as a sales-type lease by the lessor, interest revenue Select...
In a lease that is recorded as a sales-type lease by the lessor,
interest revenue
Select one:
a. Does not arise.
b. Should be recognized over the life of the lease by the effective
interest method.
c. Should be recognized over the life of the lease by the
straight-line method.
d. Should be recognized in full as revenue at the lease's
inception.
Solutions
Expert Solution
Correct Answer :
Option(b) or Should be recognized over the life of the lease by the effective interest method is correct answer because unearned income is calculated by taking the difference between gross investment in the lease and present value of gross investment and this unearned income is amortized by using the effective interest method.
Incorrect answers:
Option(a) or interest revenue does not arise is incorrect answer because the effective interest method is used to recognized over the life of the lease.
Option(c) or should be recognized over the life of the lease by the straight-line method is incorrect answer because the effective interest method is recognized over the life of the lease.
Option(d) or should be recognized in full as revenue at the lease's inception is incorrect answer because interest revenue is used for amortizing the effective interest method.
So correct answer is option (b)
ekkarill92 answered 2 years agoRelated Solutions
Compare / contrast a sales-type vs operating lease by the lessor; Lease receivable Recognition of interest...
Compare / contrast a sales-type vs operating lease by the
lessor;
Lease receivable
Recognition of interest revenue
Gross profit
Do not include the the 5 lease classification criteria in your
answer.
A lessor and a lessee signed a lease agreement that qualifies as a finance/sales-type lease and...
A lessor and a lessee signed a lease agreement that qualifies as
a finance/sales-type lease and calls for annual lease payments of
$26,269 over a six-year lease term. The asset's estimated useful
life is also six years. The first payment is due on January 1st,
which is the beginning of the lease. The interest rate is 5%. Based
on these facts, the present value of the lease payments (which are
equal to the value of the asset to the lessor)...
Explain the distinction between a direct-financing lease and a sales-type lease for a lessor.
Explain the distinction between a direct-financing lease and a
sales-type lease for a lessor.
(Lessor Entries; Sales-Type Lease with Option to Purchase) Castle Leasing Company signs a lease agreement on...
(Lessor Entries; Sales-Type Lease with Option to Purchase)
Castle Leasing Company signs a lease agreement on January 1,
2017, to lease electronic equipment to Jan Way Company. The term of
the non-cancelable lease is 2 years, and payments are required at
the end of each year. The following information relates to this
agreement.
1.
Jan Way has the option to purchase the equipment for $16,000
upon termination of the lease. It is not reasonably certain
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Sales-Type lease with Selling Profit – Lessor. (Note: This is the exact same information from the...
Sales-Type lease with Selling Profit – Lessor.
(Note: This is the exact same information from the previous
problem, but we’ll look at it from the standpoint of the Lessor.)
On January 1st, 2019 Brook Paving Co leased a
road-paving machine from Caterpillar Co. for 7 years, with annual
payments of $506,986 due at the signing of the lease, and then at
December 31st for the next 6 years. The equipment had
normal sales price of $3,000,000. The interest rate implicit...
2. Sales-Type lease with Selling Profit – Lessor. (Note: This is the exact same information from...
2. Sales-Type lease with Selling Profit – Lessor. (Note: This is
the exact same information from the previous problem, but we’ll
look at it from the standpoint of the Lessor.) On January 1st, 2019
Brook Paving Co leased a road-paving machine from Caterpillar Co.
for 7 years, with annual payments of $506,986 due at the signing of
the lease, and then at December 31st for the next 6 years. The
equipment had normal sales price of $3,000,000. The interest rate...
Host Co as a lessor records a sales type lease of machinery on 1/1/19. The 7...
Host Co as a lessor records a sales type lease of machinery on
1/1/19. The 7 annual lease payments of $210,000 are received at the
end of each year. The present value of the lease payments at 10% is
$1,022,400.
Prepare a lease amortization schedule from 1/1/19 to
12/31/21.
Prepare the journal entries for Host from 1/1/19 to
12/31/20.
SHOW ALL COMPUTATIONS.
Host Co as a lessor records a sales type lease of machinery on 1/1/19. The 7...
Host Co as a lessor records a sales
type lease of machinery on 1/1/19. The 7 annual lease payments of
$210,000 are received at the end of each year. The present value of
the lease payments at 10% is $1,022,400.
Prepare a lease amortization schedule from 1/1/19 to
12/31/21.
Prepare the journal entries for Host from 1/1/19 to
12/31/20.
SHOW ALL COMPUTATIONS.
**This ia for a lessor not lessee.
Brief Exercise 15-6 Sales-type lease; lessor; income statement effects [LO15-3] A lease agreement that qualifies as...
Brief Exercise 15-6 Sales-type lease; lessor; income statement
effects [LO15-3]
A lease agreement that qualifies as a finance lease calls for
annual lease payments of $50,000 over a four-year lease term (also
the asset’s useful life), with the first payment at January 1, the
beginning of the lease. The interest rate is 7%. The lessor’s
fiscal year is the calendar year. The lessor manufactured this
asset at a cost of $144,000. (FV of $1, PV of $1, FVA of $1,...
E21-8 (L02,4) EXCEL (Lessor Entries; Sales-Type Lease) Crosley Company, a machinery dealer, leased a machine to...
E21-8 (L02,4) EXCEL (Lessor Entries; Sales-Type
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the beginning of each year. The first payment is received on
January 1, 2017. Crosley had purchased the machine during 2016 for
$160,000. Collectibility of lease payments by Crosley is probable.
Crosley set the annual rental to ensure a 6% rate of return....
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