Question
In: Accounting
CHL Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it...
CHL Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it to Provincial Airlines Corp. for a period of 10 years. Both CHL and Provincial Airlines follow ASPE. The equipment’s normal selling price is $210,482 and its unguaranteed residual value at the end of the lease term is estimated to be $15,000. Provincial Airlines will make annual payments of $25,000 at the beginning of each year and pay for all maintenance and insurance. CHL incurred costs of $105,000 in manufacturing the equipment and $7,000 in negotiating and closing the lease. CHL has determined that the collectibility of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%.
Instructions
Answer the following questions, rounding all numbers to the nearest dollar.
a. Using tables, a financial calculator, or Excel functions, calculate the PV of the lease payments and unguaranteed residual value under the lease.
b. Discuss the nature of this lease in relation to the lessor and calculate the amount of each of the following items:
- Gross investment
- Unearned interest income
- Sale price
- Cost of goods sold
c. Prepare a 10-year lease amortization schedule for the lease obligation using Excel.
d. Prepare all of the lessor’s journal entries for the first year of the lease, assuming the lessor’s fiscal year end is five months into the lease. Reversing entries are not used.
e. Determine the current and non-current portions of the net investment at the lessor’s fiscal year end, which is five months into the lease.
f. Assuming that the $15,000 residual value is guaranteed by the lessee, what changes are necessary to parts (a) to (e)?
g. Assume that, as an alternative, CHL would consider leasing the equipment for 12 years if it could recover the normal selling price of $210,482. How much would CHL charge the lessee annually for a 12-year lease? Assume the residual value at the end of 12 years would be $0, and that lease payments would be due at the start of each year. Show calculations using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel functions.
Solutions
Expert Solution
| part a | ||||||||
| year | lease payments | present value factor | present value | |||||
| 0 | $0.00 | 1.0000 | $0.00 | |||||
| 1 | lease payment | $25,000.00 | 0.9259 | $23,148.15 | ||||
| 2 | lease payment | $25,000.00 | 0.8573 | $21,433.47 | ||||
| 3 | lease payment | $25,000.00 | 0.7938 | $19,845.81 | ||||
| 4 | lease payment | $25,000.00 | 0.7350 | $18,375.75 | ||||
| 5 | lease payment | $25,000.00 | 0.6806 | $17,014.58 | ||||
| 6 | lease payment | $25,000.00 | 0.6302 | $15,754.24 | ||||
| 7 | lease payment | $25,000.00 | 0.5835 | $14,587.26 | ||||
| 8 | lease payment | $25,000.00 | 0.5403 | $13,506.72 | ||||
| 9 | lease payment | $25,000.00 | 0.5002 | $12,506.22 | ||||
| 10 | lease payment | $25,000.00 | 0.4632 | $11,579.84 | ||||
| 10 | unguaranteed residual value | $15,000.00 | 0.4632 | $6,947.90 | ||||
| Presnt value of leaase payments and unguaranteed residua value | $174,699.94 | |||||||
| part b | ||||||||
| Gross investiment | `25000*10+15000 | $265,000.00 | ||||||
| unearned intrest income | Gross investiment - present value of lease payments and unguaranteed residual value | `265000-174700 | $90,300.00 | |||||
| sale price | $174,700.00 | |||||||
| cost of goods sold | $112,000.00 | |||||||
| part c | lease amortization schedule | |||||||
| year | expensee | repayment | investiment | |||||
| 0 | $174,700.00 | |||||||
| 1 | $25,000.00 | $13,976.00 | $11,024.00 | $163,676.00 | ||||
| 2 | $25,000.00 | $13,094.08 | $11,905.92 | $151,770.08 | ||||
| 3 | $25,000.00 | $12,141.61 | $12,858.39 | $138,911.69 | ||||
| 4 | $25,000.00 | $11,112.93 | $13,887.07 | $125,024.62 | ||||
| 5 | $25,000.00 | $10,001.97 | $14,998.03 | $110,026.59 | ||||
| 6 | $25,000.00 | $8,802.13 | $16,197.87 | $93,828.72 | ||||
| 7 | $25,000.00 | $7,506.30 | $17,493.70 | $76,335.02 | ||||
| 8 | $25,000.00 | $6,106.80 | $18,893.20 | $57,441.82 | ||||
| 9 | $25,000.00 | $4,595.35 | $20,404.65 | $37,037.16 | ||||
| 10 | $40,000.00 | $2,962.97 | $37,037.03 | $0.14 | ||||
| part d | ||||||||
| jouranal entries in the books of lessor | ||||||||
| particulars | Debit | credit |
 ekkarill92 answered 1 year agoRelated SolutionsGeorge Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases...George Company manufactures a check-in kiosk with an estimated
economic life of 12 years and leases it to National Airlines for a
period of 10 years. The normal selling price of the equipment is
$299,140, and its unguaranteed residual value at the end of the
lease term is estimated to be $20,000. National will pay annual
payments of $40,000 at the beginning of each year and all
maintenance, insurance, and taxes. George incurred costs of
$180,000 in manufacturing the equipment...
George Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases...George Company manufactures a check-in kiosk with an estimated
economic life of 12 years and leases it to National Airlines for a
period of 10 years. The normal selling price of the equipment is
$299,140, and its unguaranteed residual value at the end of the
lease term is estimated to be $20,000. National will pay annual
payments of $40,000 at the beginning of each year and all
maintenance, insurance, and taxes. George incurred costs of
$180,000 in manufacturing the equipment...
George Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases...George Company manufactures a check-in kiosk with an estimated
economic life of 12 years and leases it to National Airlines for a
period of 10 years. The normal selling price of the equipment is
$299,140, and its unguaranteed residual value at the end of the
lease term is estimated to be $20,000. National will pay annual
payments of $40,000 at the beginning of each year and all
maintenance, insurance, and taxes. George incurred costs of
$180,000 in manufacturing the equipment...
Grouper Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases...Grouper Company manufactures a check-in kiosk with an estimated
economic life of 12 years and leases it to Monty Airlines for a
period of 10 years. The normal selling price of the equipment is
$255,322, and its unguaranteed residual value at the end of the
lease term is estimated to be $20,600. Monty will pay annual
payments of $36,600 at the beginning of each year. Grouper incurred
costs of $179,000 in manufacturing the equipment and $3,800 in
sales commissions in...
Concord Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases...
Concord Company manufactures a check-in kiosk with an estimated
economic life of 12 years and leases it to National Airlines for a
period of 10 years. The normal selling price of the equipment is
$318,274, and its unguaranteed residual value at the end of the
lease term is estimated to be $18,100. National will pay annual
payments of $39,500 at the beginning of each year. Concord incurred
costs of $182,900 in manufacturing the equipment and $3,900 in
sales commissions in...
Windsor Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases...Windsor Company manufactures a check-in kiosk with an
estimated economic life of 12 years and leases it to National
Airlines for a period of 10 years. The normal selling price of the
equipment is $262,268, and its unguaranteed residual value at the
end of the lease term is estimated to be $21,400. National will pay
annual payments of $36,200 at the beginning of each year. Windsor
incurred costs of $177,800 in manufacturing the equipment and
$4,400 in sales commissions in...
Amirante SA manufactures a CT scanner with an estimated life of 12 years and leases it...Amirante SA manufactures a CT scanner with an estimated life of
12 years and leases it to Chambers Medical Center for a period of
10 years. The normal selling price of the machine is $2,000,000,
and its guaranteed residual value at the end of the lease term is
$300,000. The hospital will pay equal rentals at the beginning of
each year starting January 1, 2019. The machine has a cost of
$1,200,000 on Amirante’s books on January 1, 2019. Amirante...
On January 1, 2016, Ballieu Company leases specialty equipment with an economic life of 8 years...On January 1, 2016, Ballieu Company leases specialty equipment
with an economic life of 8 years to Anderson Company. The lease
contains the following terms and provisions:
•
The lease is noncancelable and has a term of 8 years.
•
The annual rentals are $34,500, payable at the beginning of
each year.
•
The interest rate implicit in the lease is 11%.
•
Anderson agrees to pay all executory costs and is given an
option to buy the equipment for...
On January 1, 2016, Ballieu Company leases specialty equipment with an economic life of 8 years...On January 1, 2016, Ballieu Company leases specialty equipment
with an economic life of 8 years to Anderson Company. The lease
contains the following terms and provisions:
•
The lease is noncancelable and has
a term of 8 years.
•
The annual rentals are $40,500,
payable at the beginning of each year.
•
The interest rate implicit in the
lease is 13%.
•
Anderson agrees to pay all
executory costs and is given an option to buy the equipment for...
On January 1, 2016, Ballieu Company leases specialty equipment with an economic life of 8 years...On January 1, 2016, Ballieu Company leases specialty equipment
with an economic life of 8 years to Anderson Company. The lease
contains the following terms and provisions: • The lease is
noncancelable and has a term of 8 years. • The annual rentals are
$40,500, payable at the beginning of each year. • The interest rate
implicit in the lease is 13%. • Anderson agrees to pay all
executory costs and is given an option to buy the equipment for...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|