Question

In: Accounting

Item 13 Item 13 Neely BBQ leased equipment from Smoke Industries on January 1, 2018. Smoke...

Item 13 Item 13 Neely BBQ leased equipment from Smoke Industries on January 1, 2018. Smoke Industries had manufactured the equipment at a cost of $810,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Other information: Lease term 4 years Annual payments $360,000 beginning Jan. 1, 2018, and at Dec. 31, 2018, 2019, and 2020 Life of asset 4 years Rate the lessor charges 8% Required: 1. Prepare the appropriate entries for Neely BBQ (Lessee) on January 1, 2018, and December 31, 2018. 2. Prepare the appropriate entries for Smoke Industries (Lessor) on January 1, 2018, and December 31, 2018. Assume that control is transferred to the lessee. 3. Prepare the appropriate entries for Smoke Industries (Lessor) on January 1, 2018, and December 31, 2018. Assume that control is not transferred to the lessee.

Solutions

Expert Solution

Fair Value of the Lease=PV of Lease Payments

Date

LEASE
PAYMENT

PVF@ 8%

PRESENT VALUE

JAN 1,2018

360000

1

360000

DEC 31,2018

360000

0.9259

333333

DEC 31,2019

360000

0.8573

308642

DEC 31,2020

360000

0.7938

285780

FAIR VALUE OF LEASE

1287755

EFFEECTIVE INTEREST SCHEDULE

DATE

Opening
Liability

LEASE
PAYMENT

INTEREST

REDUCTION
IN LIABILITY

Closing LEASE
LIABILITY

JAN 1,2018

1287755

360000

0

360000

927755

DEC 31,2018

927755

360000

74220

285780

641975

DEC 31,2019

641975

360000

51358

308642

333333

DEC 31,2020

333333

360000

26667

333333

0

1.

JOURNAL ENTRIES IN THE BOOKS OF NEELY BBQ

Date

Debit

Credit

JAN 1,2018

Right of Use Asset A/c(Dr)

1287755

To Lease Liability A/c(Cr)

1287755

JAN 1,2018

Lease Liability A/c(Dr)

360000

To Cash A/c (Cr)

360000

DEC 31,2018

Lease Liability A/c(Dr)

285780

Interest Expense A/c(Dr)

74220

To Cash A/c (Cr)

360000

2. Journal Entries for Smoke Industries (Lessor) on January 1, 2018, and   December 31, 2018. (Control is transferred to the lessee)

Date

Debit

Credit

JAN 1,2018

Lease Receivable A/c(Dr)

1287755

To Asset A/c(Cr)

1287755

JAN 1,2018

Cash A/c (Dr)

360000

To Lease Receivable A/c(Cr)

360000

DEC 31,2018

Cash A/c (Dr)

360000

To Lease Receivable A/c(Cr)

285780

To Interest Income A/c (Cr)

74220

3.Journal Entries for Smoke Industries (Lessor) on January 1, 2018, and   December 31, 2018
(control is not transferred to the lessee)

Date

Debit

Credit

JAN 1,2018

Cash A/c(Dr)

360000

To Unearned Revenue A/c (Cr)

360000

Dec 31,2018

To Unearned RevenueA/c (Dr)

360000

Lease Revenue A/C (Cr)

360000

DEC 31,2018

Cash A/c (Dr)

360000

To Lease Revenue A/c(Cr)

360000

DEC 31,2018

Depreciation Expense A/c (Dr)(810000/4)

202500

To Accumulated Depreciation A/c(Cr)

202500


Related Solutions

The Bobo Company leased equipment from Bolinger Industries on January 1, 2018. Bolinger purchased the equipment...
The Bobo Company leased equipment from Bolinger Industries on January 1, 2018. Bolinger purchased the equipment at a cost of $270,000. Other information: Lease term 3 years Annual payments $120,000 beginning Jan. 1, 2018 Life of asset 3 years Implicit interest rate 8% Lessee's incremental rate 8% Present value of an ordinary annuity of $1, i = 8, n = 3 2.5771 Present value of an annuity due of $1, i = 8, n = 3 2.7833 Required: Round your...
Charles river hospital leased medical equipment from plymouth industries on january 1 2018. Plymounth industries manufactured...
Charles river hospital leased medical equipment from plymouth industries on january 1 2018. Plymounth industries manufactured the equipment at a cost of 600,000. the equipment has a fair value of 750,654. Appropriate adjusting entries are made quarterly. Lease term 5 years (20 quarterly periods) Quarterly lease payments 43,641 at Jan 1 2016, and at Mar 31, june 30, sept. 30, and Dec 31 thereafter. Economic life of asset 6 years residual value at end of lease term 33,684 interest rate...
On January 1, 2018, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease....
On January 1, 2018, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic. Portions of the Equipment Leasing’s lease amortization schedule appear below: Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance 191,981 2018 20,500 0 20,500 171,481 2018 20,500 17,148 3,352 168,129 2019 20,500 16,813 3,687 164,442 2020 20,500...
RBC leased high-tech electronic equipment from Scotia on January 1, 2018. The present value of the...
RBC leased high-tech electronic equipment from Scotia on January 1, 2018. The present value of the lease payments and the fair value of the equipment are both $56,040. Related Information:                                                          Lease term                                          2 years (8 quarterly periods)             Quarterly lease payments                   $7,500 at Jan 1, 2018 and at Mar 31,                                                                         June 30, Sept 30 and Dec 31 thereafter Economic life of asset                        2 years (straight-line, zero residual value, quarterly) The interest rate needs to be calculated with the...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2022, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $300,000 to manufacture and has an expected useful life of six years. Its normal sales price is $365,760. The expected residual value of $25,000 at December 31, 2022, is not guaranteed. Equal payments under the lease...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2022, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $600,000 to manufacture and has an expected useful life of six years. Its normal sales price is $672,747. The expected residual value of $15,000 at December 31, 2022, is not guaranteed. Equal payments under the lease...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $824,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2018, will be $100,000. Negotiations led to the lessee guaranteeing a $140,000 residual value. Equal payments under the lease are $200,000 and are due on December...
On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period...
On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $434,644 and has an expected economic life of five years. Aqua expects the residual value at December 31, 2018, to be $70,000. Negotiations led to Maywood guaranteeing a $100,000 residual value. Equal payments under the lease are $140,000 and are due on December...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2018, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $843,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2018, will be $119,000. Negotiations led to the lessee guaranteeing a $178,000 residual value. Equal payments under the lease are $219,000 and are due on December...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2018, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $843,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2018, will be $119,000. Negotiations led to the lessee guaranteeing a $178,000 residual value. Equal payments under the lease are $219,000 and are due on December...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT