Answer questions 14-19 from the following information. On January 1, Lessor Company leases equipment to Lessee...

Answer questions 14-19 from the following information.

On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 7 years; the economic life of the asset is 9 years. The cost of the equipment is $10,000; its fair value is $15,000. Lessor’s implicit rate is 4%; Lessee’s incremental borrowing rate is 4%. The lease payments of $2,400 are due at the beginning of each year.

Is this a finance lease or an operating lease for Lessee?
What is the lease liability on January 1?
What is the right-of-use asset on January 1?
Now assume that there is an unguaranteed residual value of $4,000, the present value of

which is $3,040. If the present value factor of an annuity due, 7 periods at 4%, is 6.242,

how much are the periodic payments?
On the journal entry for Lessor, what is the dollar amount for Sales?
Now assume that instead of the residual value of $4,000 being unguaranteed, the residual

value is guaranteed by Lessee in the amount of $4,000. Does Lessee include the $4,000 guaranteed residual value in the lease liability?

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Answer questions 14-19 from the following information. On January 1, Lessor Company leases equipment to Lessee...

Answer questions 14-19 from the following information. On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 7 years; the economic life of the asset is 11 years. The cost of the equipment is $10,000; its fair value is $15,000. Lessor’s implicit rate is 5%; Lessee’s incremental borrowing rate is 5%. The lease payments of $2,469 are due at the beginning of each year. Is this a finance lease or an operating lease for Lessee? What...

Answer questions 22-23 from the following information. On January 1, Lessee leases equipment with a useful...

Answer questions 22-23 from the following information. On January 1, Lessee leases equipment with a useful life of 5 years for a three-year lease term. Payments of $35,000 are due at the beginning of each year. The incremental borrowing rate is 6%. The present value of the payments is $98,000. What is lease expense for the first year? What is the amortization of the ROU asset for the first year?

On January 1, Year 1, lessor leases equipment to lessee. Data on the lease: Equipment fair...

On January 1, Year 1, lessor leases equipment to lessee. Data on the lease: Equipment fair value and lessor's book value, $25,771 (asset is new) Lessor's implicit rate and lessee's implicit borrowing rate, 8% Lease payments due each December 31 through Year 3 (three-year lease term) Useful life of equipment, three years (no residual value) Payments are due at the end of the year (ordinary annuity). 1. Lessor's Calculation of Lease Payments with No Residual Value 2. Lessee's Calculation of...

Lessor enters into a seven-year lease for equipment with Lessee. Lessor sells and leases the equipment,...

Lessor enters into a seven-year lease for equipment with Lessee. Lessor sells and leases the equipment, which is not specialized in nature and is expected to have an alternative use for Lessor at the end of the lease term. Under the lease: Lessor receives annual lease payments of $25,000, with the first one payable at the commencement of the lease and one payment annually at the lease anniversary date thereafter. Lessor expects the residual value of the equipment to be...

Leases (Lessee and Lessor) Hayes Corp. is a manufacturer of truck trailers. On January 1, 2018,...

Leases (Lessee and Lessor) Hayes Corp. is a manufacturer of truck trailers. On January 1, 2018, Hayes Corp. leases ten trailers to Lester Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided: 1. The first payment of $100,146 is due on January 1, 2018, and each subsequent payment is made each year on December 31, starting December 31, 2018. The rate of return for Hayes is 8%. This is also the...

On January 1, 2019 Lessee Co., leased equipment from Lessor Co. The equipment had a useful...

On January 1, 2019 Lessee Co., leased equipment from Lessor Co. The equipment had a useful life of 6 years, a fair market value of $50,000, and a cost to Lessor Co. of $35,000. Lessor used an implicit interest rate of 7%. The lease is for 6 years, and calls for payments of $8,497 on January 1 of each year beginning January 1, 2019. The residual value of the equipment on December 31, 2024 is estimated to be $10,000, and...

(Lessee-Lessor Accounting for Residual Values) Goring Dairy leases its milking equipment from King Finance Company under...

(Lessee-Lessor Accounting for Residual Values) Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, no cancelable, and requires equal rental payments of $30,300 due at the beginning of each year starting January 1, 2012. 2. The equipment has a fair value and cost at the inception of the lease (January 1, 2012) of $220,404, an estimated economic life of 10 years, and a residual value (which is...

Ivanhoe Leasing Company (lessor) agrees to lease equipment to Sarasota Construction (Lessee) on January 1, 2017....

Ivanhoe Leasing Company (lessor) agrees to lease equipment to Sarasota Construction (Lessee) on January 1, 2017. The following information relates to the lease agreement. (a) the term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. (b) the cost of the machinery is $653,420 , and the fair value of the asset on January 1, 2017, is $887,406. (c) At the end of the lease term, the asset...

Dole Company (Lessee) desires to lease a piece of equipment from Deere & Company (Lessor). The...

Dole Company (Lessee) desires to lease a piece of equipment from Deere & Company (Lessor). The equipment will cost $100,000. The lease term will be 5 years. Lease payments will be made at the beginning of each year. Deere expects to depreciate the equipment on a straight-line basis to 0. The salvage value is expected to be $10,000. Deere’s tax rate is 40%, and its opportunity cost is 11%. What lease payment should Deere charge Dole for the equipment? Please...

Dole Company (Lessee) desires to lease a piece of equipment from Deere & Company (Lessor). The...

Dole Company (Lessee) desires to lease a piece of equipment from Deere & Company (Lessor). The equipment will cost $100,000. The lease term will be 5 years. Lease payments will be made at the beginning of each year. Deere expects to depreciate the equipment on a straight line basis to 0. The salvage value is expected to be $10,000. Deere’s tax rate is 40%, and its opportunity cost is 11%. What lease payment should Deere charge Dole for the equipment?

Subjects