Sales –Type Lease with Residual Value. On January 1, 2019, Rainbow Corp. leased a piece of...

Sales –Type Lease with Residual Value. On January 1, 2019, Rainbow Corp. leased a piece of production equipment from Steelhead Company under a 6-year lease, with payments due at the beginning of each year. Steelhead manufactured the equipment at a cost of $400,000 and its typical sales price is $500,000. The annual Lease payment was computed based on an implicit interest rate of 4%. Because its useful life is 8 years, there is an expected residual value of the equipment of $50,000 at the end of the lease.
1. Calculate the payment that Steelhead will charge to Rainbow, when considering that Steelhead will recover a portion of its investment through the residual value
2. Prepare Steelhead’s amortization table, including the value of the residual at the end of the lease.
3. Prepare the JE’s that steelhead will record on January 1, 2019 to initially record the lease.
4. Assume that Rainbow was not required to guarantee any residual value at the end of the lease. What would be Rainbow’s JE at January 1, 2019 to initially record the lease?

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Part 4: Lessee-Lessor Entries: Sales-Type Lease On January 1, 2018, Capital Corp. leased equipment to Hinton...

Part 4: Lessee-Lessor Entries: Sales-Type Lease On January 1, 2018, Capital Corp. leased equipment to Hinton Corporation. The following information pertains to this lease. The term of the noncancelable lease is 12 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. Equal rental payments are due on January 1 of each year, beginning in 2018. The fair value of the equipment on January 1, 2018, is $247,500, and its cost is $198,000....

Exercise 15-25 Lessor; sales-type lease; residual value effect on financial statements [LO15-2, 15-6] At January 1,...

Exercise 15-25 Lessor; sales-type lease; residual value effect on financial statements [LO15-2, 15-6] At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $30,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $225,000 (its fair value) and was expected to have a useful life of 13...

LEASE ONE In January 2019, Alsace Company leased equipment with a fair value of $2,500,000 from...

LEASE ONE In January 2019, Alsace Company leased equipment with a fair value of $2,500,000 from Lorraine Corp. Lorraine estimates that the residual value of the equipment at the end of the lease term will be $750,000. Alsace is required to apply ASC 842 when accounting for the lease. The leasing contract includes the following terms: I. Alsace will make 10 end-of-year payments of $300,000 each beginning on December 31, 2019. II. Alsace will have complete control of the equipment...

III. Operating Lease / Direct Financing Lease On January 1, 2019, Parker Mfg Inc. leased a...

III. Operating Lease / Direct Financing Lease On January 1, 2019, Parker Mfg Inc. leased a widget machine from Equipment Supply Corporation (ESC). The noncancelable lease agreement specifies four annual payments of $100,000 beginning January 1, 2019, the inception of the lease, and at each January 1 through 2022. ESC purchased the machine for cash on January 1, 2019 for its fair value of $499,271. The useful life of the widget machine is estimated to be six years. The appropriate...

On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease...

On January 1, 2018, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 13% rate of return for providing long-term financing. The lease agreement specified: Ten annual payments of $68,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $380,163. The lease qualifies as a...

Ajax Company manufactures equipment that they sell or lease. On January 1, 2019, Ajax leased equipment...

Ajax Company manufactures equipment that they sell or lease. On January 1, 2019, Ajax leased equipment to Comet Company for a five-year period after which ownership of the leased asset will be transferred to Comet. The lease calls for equal annual payments of $50,000. The first payment is due on January 1, 2019. Thereafter, the payments are due on December 31st of each year with the second payment due on December 31, 2019. The equipment cost Ajax $176,000 to produce....

On January 1, 2021, Miller Company leased equipment from Alpha Louse Corp. Alphe Lease Corp purchased...

On January 1, 2021, Miller Company leased equipment from Alpha Louse Corp. Alphe Lease Corp purchased the equipment at a cost of $150.000. The agreement specified three payments of $50,000 beginning January 1, 2021, the beginning of the lense, and on each December 31 thereafter through 2022. The useful life of the equipment is estimated to be five years wor's implicit rate was 5%. The present value of those three payments at a discount rate of % is $142,971, On...

E21-7 (L04) (Lessee-Lessor Entries; Sales-Type Lease) On January 1, 2017, Bensen Company leased equipment to Flynn...

E21-7 (L04) (Lessee-Lessor Entries; Sales-Type Lease) On January 1, 2017, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. Thetermofthenoncancelableleaseis6years,withnorenewaloption.Theequipmentrevertstothelessoratthetermina- tion of the lease. Equal rental payments are due on January 1 of each year, beginning in 2017. The fair value of the equipment on January 1, 2017, is $150,000, and its cost is $120,000. Theequipmenthasaneconomiclifeof8years,withanunguaranteedresidualvalueof$10,000.Flynndepreciatesallofits equipment on a straight-line basis. Bensensettheannualrentaltoensurean11%rateofreturn.Flynn’sincrementalborrowingrateis12%,andtheimplicit rate of the lessor is unknown. Collectibilityofleasepaymentsisreasonablypredictable,andnoimportantuncertaintiessurroundtheamountofcosts yet to be incurred by the...

A company purchased a piece of equipment on January 2, 20x5 for $560,000 (residual value of...

A company purchased a piece of equipment on January 2, 20x5 for $560,000 (residual value of zero), and determined that it would need to be decommissioned at the end of its useful life at an estimated cost of $150,000. The relevant discount rate is 5% and the useful life is 20 years. The CFO believes that advances in technologies will cause this estimate to be $50,000 in 20x13 and is interested in knowing what impact this change in estimate will...

On January 1, 2020, Nivtop Corp. leased a machine from Nosnah Inc. The lease agreement calls...

On January 1, 2020, Nivtop Corp. leased a machine from Nosnah Inc. The lease agreement calls for Nivtop to make four annual lease payments of $559,113 each January 1, with the first payment to be made on January 1, 2020. Nivtop’s incremental borrowing rate is 8%; this is the same rate Nosnah used to calculate the lease payments. The fair market value of the machine is $2,000,000 and its expected useful life is 5 years. This is a non-specialized machine....

Subjects