Question

In: Accounting

On December 31, 2015, Burton, Inc. leased machinery with a fair value of $1,260,000 from Cey...

On December 31, 2015, Burton, Inc. leased machinery with a fair value of $1,260,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $240,000 beginning December 31, 2015. The lease is appropriately accounted for by Burton as a finance lease. Burton’s incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%.

The present value of an annuity due of 1 for 6 years at 10% is 4.7908.

The present value of an annuity due of 1 for 6 years at 11% is 4.6959.

In its December 31, 2015 balance sheet, Burton should report a lease liability of

a.   $909,792.

b.   $1,020,000.

c.   $1,127,016.

d.   $1,149,792.

I need to know how to plug it into my BA 2 Calculator.

Solutions

Expert Solution

Answer:  

a)The amount of lease alibility that Burton, Inc should report in the Balance Sheet as on December 31, 2015 is $9,09,792.
Present value of an annuity due of 1 for 6 years at 10% = 4.7908
Present value of the annual lease payments = 240,000 x 4.7908 = $11,49,792
Lease accounting schedule is as follows.
Date Lease Interest Annual lease Reduction in
Receivable/ Receivable/ Receipt / Lease receivable/
Liability Payable Payment Liability
Dec.31,2015       11,49,792                     -                2,40,000           2,40,000
Dec.31,2016         9,09,792             90,979              2,40,000           1,49,021
Dec.31,2017         7,60,771             76,077              2,40,000           1,63,923
Dec.31,2018         5,96,848             59,685              2,40,000           1,80,315
Dec.31,2019         4,16,533             41,653              2,40,000           1,98,347
Dec.31,2020         2,18,186             21,819              2,40,000           2,18,181
         2,90,213            14,40,000         11,49,787

ekkarill92 answered 3 years ago
Next > < Previous

Related Solutions

. On December 31, 2017, Eastern Inc. leased machinery with a fair value of $420,000 from...
. On December 31, 2017, Eastern Inc. leased machinery with a fair value of $420,000 from Northern Rentals. The agreement is a six-year non-cancellable lease requiring annual payments of $80,000 beginning December 31, 2017. The lease is appropriately accounted for by Eastern as a finance lease. Eastern’s incremental borrowing rate is 11%; however, they also know that the interest rate implicit in the lease payments is 10%. Eastern adheres to IFRS. The present value of an annuity due for 6...
On 1/1/19, Greene company leased machinery with a fair value of $1,600,000 from gray corporation. the...
On 1/1/19, Greene company leased machinery with a fair value of $1,600,000 from gray corporation. the agreement is a 6-year noncancelable lease requiring annual payments. of $300,000 beginning 1/1/19. The machinery has a $51,500 residual value at the end of the lease, which is not guaranteed by Greene. Greene appropriately accounts for the lease. as a financing lease and is aware that the implicit rate in the lease is 6%. Prepare Greene's lease amortization table. What journal entry(ies) will Greene...
On December 31, 2019, Sunland Company leased machinery from Terminator Corporation for an agreed upon lease...
On December 31, 2019, Sunland Company leased machinery from Terminator Corporation for an agreed upon lease term of 3 years. Sunland agreed to make annual lease payments of $15,000, beginning on December 31, 2019. The expected residual value of the machinery at the end of the lease term is $7,500. Sunland guarantees a residual value of $7,500 at the end of the lease term, which equals the expected residual value of the machinery. What amount will Sunland record as its...
The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014. Machinery...
The following data relate to the Machinery account of Eshkol, Inc. at December 31, 2014. Machinery A B C D Original cost $63,480 $70,380 $110,400 $110,400 Year purchased 2009 2010 2011 2013 Useful life 10 years 15,000 hours 15 years 10 years Salvage value $4,278 $4,140 $6,900 $6,900 Depreciation method Sum-of-the-years'-digits Activity Straight-line Double-declining balance Accum. depr through 2014* $43,056 $48,576 $20,700 $22,080 *In the year an asset is purchased, Eshkol, Inc. does not record any depreciation expense on the...
On December 31, 2010, Harris Co. leased a machine from Catt, Inc. for a five-year period....
On December 31, 2010, Harris Co. leased a machine from Catt, Inc. for a five-year period. Equal annual payments under the lease are 630,000 (including 30,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2010, and the second payment was made on December 31, 2011. The five lease payments are discounted at 10% over the lease term. The, present value of minimum lease payments at the inception of...
In year 0, Javens Inc. sold machinery with a fair market value of $610,000 to Chris....
In year 0, Javens Inc. sold machinery with a fair market value of $610,000 to Chris. The machinery’s original basis was $477,020 and Javens’s accumulated depreciation on the machinery was $71,000, so its adjusted basis to Javens was $406,020. Chris paid Javens $61,000 immediately (in year 0) and provided a note to Javens indicating that Chris would pay Javens $91,500 a year for six years beginning in year 1. What is the amount and character of the gain that Javens...
In year 0, Javens Inc. sold machinery with a fair market value of $630,000 to Chris....
In year 0, Javens Inc. sold machinery with a fair market value of $630,000 to Chris. The machinery’s original basis was $493,920 and Javens’s accumulated depreciation on the machinery was $73,000, so its adjusted basis to Javens was $420,920. Chris paid Javens $63,000 immediately (in year 0) and provided a note to Javens indicating that Chris would pay Javens $94,500 a year for six years beginning in year 1. What is the amount and character of the gain that Javens...
For the year ended December 31, 2015, Patsy Inc. had income from continuing operations of $1,500,000....
For the year ended December 31, 2015, Patsy Inc. had income from continuing operations of $1,500,000. During 2015, it disposed of its Calgary division at a loss before taxes of $125,000. Before the disposal, the division operated at a before-tax loss of $150,000 in 2014 and $175,000 in 2015. Patsy also had an unrealized gain in its Available-for-sale investments of $27,500 (net of tax). It accounts for its investments in accordance with IAS 39. Patsy had 50,000 outstanding common shares...
The comparative balance sheet of Cromme Inc. for December 31, 2016 and 2015, is shown as...
The comparative balance sheet of Cromme Inc. for December 31, 2016 and 2015, is shown as follows: 1 Dec. 31, 2016 Dec. 31, 2015 2 Assets 3 Cash $625,680.00 $586,230.00 4 Accounts receivable (net) 228,100.00 208,850.00 5 Inventories 640,910.00 617,650.00 6 Investments 0.00 240,620.00 7 Land 328,090.00 0.00 8 Equipment 704,540.00 553,320.00 9 Accumulated depreciation-equipment (166,310.00) (147,840.00) 10 Total assets $2,361,010.00 $2,058,830.00 11 Liabilities and Stockholders’ Equity 12 Accounts payable (merchandise creditors) $425,280.00 $404,550.00 13 Accrued expenses payable (operating expenses)...
The comparative balance sheet of Cromme Inc. for December 31, 2016 and 2015, is shown as...
The comparative balance sheet of Cromme Inc. for December 31, 2016 and 2015, is shown as follows: 1 Dec. 31, 2016 Dec. 31, 2015 2 Assets 3 Cash $626,170.00 $585,760.00 4 Accounts receivable (net) 227,840.00 208,880.00 5 Inventories 641,390.00 616,790.00 6 Investments 0.00 240,820.00 7 Land 327,380.00 0.00 8 Equipment 704,290.00 554,020.00 9 Accumulated depreciation-equipment (167,160.00) (148,930.00) 10 Total assets $2,359,910.00 $2,057,340.00 11 Liabilities and Stockholders’ Equity 12 Accounts payable (merchandise creditors) $424,670.00 $404,080.00 13 Accrued expenses payable (operating expenses)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT