Question

In: Accounting

2. Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease...

2. Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, 2017, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, 2017. The terms and provisions of the lease agreement, and other pertinent data, are as follows.
• The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments at the beginning of each year (annuity-due basis).
• The loader has a fair value at the inception of the lease of $50,000, an estimated economic life of five years, and no residual value of the loader at the end of the lease. Further, assume that the underlying asset has an $42,500 cost to the dealer, Caterpillar.
• The lease contains no renewal options. The loader reverts to Caterpillar at the termination of the lease.
• Collectability of payment by Caterpillar is probable.
• Caterpillar sets the annual rental payment to earn a rate of return of 4% per year (implicit rate) on its investment


2. Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, 2017, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, 2017. The terms and provisions of the lease agreement, and other pertinent data, are as follows.
• The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments at the beginning of each year (annuity-due basis).
• The loader has a fair value at the inception of the lease of $50,000, an estimated economic life of five years, and no residual value of the loader at the end of the lease. Further, assume that the underlying asset has an $42,500 cost to the dealer, Caterpillar.
• The lease contains no renewal options. The loader reverts to Caterpillar at the termination of the lease.
• Collectability of payment by Caterpillar is probable.
• Caterpillar sets the annual rental payment to earn a rate of return of 4% per year (implicit rate) on its investment
Required:

1. What kind of lease is this to Caterpillar?
2. Calculate the amount of the annual rental payment required
3. Compute the amount of Lease Receivable for Caterpillar.
4. Prepare a journal entry to record the Lease Receivable on January 1, 2017
5. Prepare an amortization schedule that would be suitable for the lessor
6. Prepare journal entry to record Caterpillar receipt of the first year’s lease payment on January 1, 2017
7. Prepare journal entry to record accrued interest revenue on the lease receivable at Dec 31, 2017
8. Prepare a partial Balance Sheet for Caterpillar Finance as December 31, 2017
9. Prepare a partial Income Statement for Caterpillar Finance as December 31, 2017
10. Prepare journal entry to record the receipt of the lease payment of January 1, 2018
11. Prepare journal entry to record accrued interest revenue on the lease receivable at Dec 31, 2018
12. Prepare journal entry to record accrued interest revenue on the lease receivable at Dec 31, 2021
13. Prepare journal entry to record the return of leased asset to Caterpillar on January 1, 2022

Solutions

Expert Solution


Related Solutions

Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement...
Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, 2017, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, 2017. The terms and provisions of the lease agreement, and other pertinent data, are as follows. • The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments at the beginning of each year (annuity-due basis). • The loader has...
Illustration: Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease...
Illustration: Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, Year 7, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, Year 7. The terms and provisions of the lease agreement, and other pertinent data, are as follows. •The term of the lease is five years. The lease agreement is noncancelable, requiring equal rental payments of $25,981.62 at the beginning of each year (annuity-due basis)....
Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement...
Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, 2017, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, 2017. The terms and provisions of the lease agreement, and other pertinent data, are as follows. • The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments at the beginning of each year (annuity-due basis). • The loader has...
Financial Statement Reporting for a Finance Lease Reynolds Construction (RC) needs a piece of equipment that...
Financial Statement Reporting for a Finance Lease Reynolds Construction (RC) needs a piece of equipment that costs $120,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 6% with payments due at the end of the year. Alternatively, RC can lease the equipment for $45,000 with payments due at...
2. Caterpillar Inc. reported its annual financial statements for the 2018 fiscal year (See the Excel...
2. Caterpillar Inc. reported its annual financial statements for the 2018 fiscal year (See the Excel sheet attached for Cat’s financials in the last 4 years). The day before the report, the firm’s market price per share closed at $127.07. For those who are not familiar with Caterpillar, here is a brief description of their business: Caterpillar Inc. is an American Fortune 100 corporation which designs, develops, engineers, manufactures, markets and sells machinery, and engines to customers via a worldwide...
(Analysis of Percentage-of-Completion Financial Statements) In 2020, Steinrotter Construction Corp. began construction work under a 3-year...
(Analysis of Percentage-of-Completion Financial Statements) In 2020, Steinrotter Construction Corp. began construction work under a 3-year contract. The contract price was $1,000,000. Steinrotter uses the percentage-of-completion method for financial accounting purposes. The income to be recognized each year is based on the proportion of cost incurred to total estimated costs for completing the contract. The financial statement presentations relating to this contract at December 31, 2020, are shown below. Balance Sheet Accounts receivable $18,000 Construction in process $65,000 Less: Billings...
Silkworm Inc is a manufacturer of construction equipment, machinery and engines. It also sells financial services....
Silkworm Inc is a manufacturer of construction equipment, machinery and engines. It also sells financial services. You anticipate a substantial increase in its machinery sales. You have the following data. US $'000 2018 2019 Net sales 39,867 57,392 COGS 30,367 43,578 SG&A 4,248 5,203 and thus in percentage terms: % of sales 2018 2019 Net sales 100 100 COGS 76.2 75.9 SG&A 10.7 9.1 a) Estimate the fixed and variable components of COGS and SG&A in 2019. What would be...
Case 13-2 Lessee and Lessor Accounting for lease (Modified) On January 2, 2020, Grant Corp. leases...
Case 13-2 Lessee and Lessor Accounting for lease (Modified) On January 2, 2020, Grant Corp. leases an asset to Pippin Corp. under the following conditions (Assume new lease accounting standard (ASC 842) are effective for both companies). 1. Annual lease payments are $10,000 for 20 years. 2. At the end of the lease term, the asset is expected to have a value of $2,750. 3. The fair value of the asset at the inception of the lease is $92,625 4....
Translation of financial statements (2 years) Assume that your company owns a subsidiary operating in Germany....
Translation of financial statements (2 years) Assume that your company owns a subsidiary operating in Germany. The subsidiary conducts most of its business activities in the European Economic Union and maintains it books in the Euro as its functional currency. Following are the subsidiary's financial statements (in €) for the prior and most recent years: The relevant exchange rates for the $US value of the Euro (€) are as follows: Prior Year Current Year BOY rate $1.29 $1.21 EOY rate...
Explain the difference between financial accounting and management accounting 2. What are subsidiary ledgers and reconciliation...
Explain the difference between financial accounting and management accounting 2. What are subsidiary ledgers and reconciliation accounts? How are they related? 3. Explain the three transaction types in asset accounting. 4. What are depreciation areas? Why are different depreciation areas necessary? 5. What are charts of accounts and the general ledger? How are they related? 6. Briefly describe the key processes in financial accounting
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT