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In: Accounting
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 years with no salvage value at the end of
its life. (Because the lease term is only 9 years, the asset does
have an expected residual value at the end of the lease term of
$101,495.). Both (a) the present value of the lease payments and
(b) the present value of the residual value (i.e., the residual
asset) are included in the lease receivable because the two amounts
combine to allow the lessor to recover its net investment. Crescent
seeks a 12% return on its lease investments. By this arrangement,
the lease is deemed to be a finance lease. (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.)
Required:
1. What will be the effect of the lease on
Crescent’s earnings for the first year (ignore taxes)?
(Enter decreases with negative numbers.)
2. What will be the balances in the balance sheet
accounts related to the lease at the end of the first year for
Crescent (ignore taxes)?
1.Effect on earnings
2.Lease receivable balance (end of year)
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Brief Exercise 15-6 Sales-type lease; lessor; income statement effects [LO15-3] A lease agreement that qualifies as...
Brief Exercise 15-6 Sales-type lease; lessor; income statement
effects [LO15-3]
A lease agreement that qualifies as a finance lease calls for
annual lease payments of $50,000 over a four-year lease term (also
the asset’s useful life), with the first payment at January 1, the
beginning of the lease. The interest rate is 7%. The lessor’s
fiscal year is the calendar year. The lessor manufactured this
asset at a cost of $144,000. (FV of $1, PV of $1, FVA of $1,...
Exercise 15-30 (Algo) Purchase option; lessor; sales-type lease; no selling profit [LO15-2, 15-6] Universal Leasing leases...
Exercise 15-30 (Algo) Purchase option; lessor; sales-type lease;
no selling profit [LO15-2, 15-6]
Universal Leasing leases electronic equipment to a variety of
businesses. The company’s primary service is providing alternate
financing by acquiring equipment and leasing it to customers under
long-term sales-type leases. Universal earns interest under these
arrangements at a 9% annual rate.
The company leased an electronic typesetting machine it purchased
for $49,900 to a local publisher, Desktop Inc., on December 31,
2020. The lease contract specified...
Brief Exercise 15-17 Lessor; effect on earnings; Type B lease At January 1, 2016, Café Med...
Brief Exercise 15-17 Lessor; effect on earnings; Type B
lease
At January 1, 2016, Café Med leased restaurant equipment from
Crescent Corporation under a Eight-year lease agreement. The lease
agreement specifies annual payments of $35,000 beginning January 1,
2016, the beginning of the lease, and at each December 31
thereafter through 2023. The equipment was acquired recently by
Crescent at a cost of $185,000 (its fair value) and was expected to
have a useful life of 12 years with no...
Exercise 15-17 Lessee and lessor; operating lease [LO15-4] On January 1, 2018, Nath-Langstrom Services, Inc., a...
Exercise 15-17 Lessee and lessor; operating lease [LO15-4]
On January 1, 2018, Nath-Langstrom Services, Inc., a computer
software training firm, leased several computers under a two-year
operating lease agreement from ComputerWorld Leasing, which
routinely finances equipment for other firms at an annual interest
rate of 4%. The contract calls for four rent payments of $18,000
each, payable semiannually on June 30 and December 31 each year.
The computers were acquired by ComputerWorld at a cost of $106,000
and were expected...
Exercise 15-17 Lessee and lessor; operating lease [LO15-4] On January 1, 2018, Nath-Langstrom Services, Inc., a...
Exercise 15-17 Lessee and lessor; operating lease [LO15-4] On
January 1, 2018, Nath-Langstrom Services, Inc., a computer software
training firm, leased several computers under a two-year operating
lease agreement from ComputerWorld Leasing, which routinely
finances equipment for other firms at an annual interest rate of
4%. The contract calls for four rent payments of $10,000 each,
payable semiannually on June 30 and December 31 each year. The
computers were acquired by ComputerWorld at a cost of $90,000 and
were expected...
Problem 15-4 (Algo) Finance/sales-type lease; lessee and lessor [LO15-1, 15-2, 15-3] Rand Medical manufactures lithotripters. Lithotripsy...
Problem 15-4 (Algo) Finance/sales-type lease; lessee and lessor
[LO15-1, 15-2, 15-3]
Rand Medical manufactures lithotripters. Lithotripsy uses shock
waves instead of surgery to eliminate kidney stones. Physicians’
Leasing purchased a lithotripter from Rand for $2,590,000 and
leased it to Mid-South Urologists Group, Inc., on January 1, 2021.
(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.)
Lease Description:
Quarterly lease payments
$...
Exercise 15-8 Selected Financial Ratios [LO15-2, LO15-3, LO15-4] The financial statements for Castile Products, Inc., are...
Exercise 15-8 Selected Financial Ratios [LO15-2, LO15-3,
LO15-4]
The financial statements for Castile Products, Inc., are given
below:
Castile Products, Inc.
Balance Sheet
December 31
Assets
Current assets:
Cash
$
21,000
Accounts receivable, net
170,000
Merchandise inventory
380,000
Prepaid expenses
6,000
Total current assets
577,000
Property and equipment, net
840,000
Total assets
$
1,417,000
Liabilities and Stockholders'
Equity
Liabilities:
Current liabilities
$
260,000
Bonds payable, 11%
330,000
Total liabilities
590,000
Stockholders’ equity:
Common stock, $10 par value
$
190,000
Retained...
Problem 15-18A Lessee-guaranteed residual value; unguaranteed residual value; different interest rates for lessor and lessee [LO15-3,...
Problem 15-18A Lessee-guaranteed residual value; unguaranteed
residual value; different interest rates for lessor and lessee
[LO15-3, 15-6, 15-7] On December 31, 2018, Yard Art Landscaping
leased a delivery truck from Branch Motors. Branch paid $36,000 for
the truck. Its retail value is $49,355. The lease agreement
specified annual payments of $12,000 beginning December 31, 2018,
the beginning of the lease, and at each December 31 through 2021.
Branch Motors’ interest rate for determining payments was 10%. At
the end of...
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...
Exercise 15-12 Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-5] Each...
Exercise 15-12 Lessor calculation of annual lease payments;
lessee calculation of asset and liability [LO15-5] Each of the
three independent situations below describes a capital lease in
which annual lease payments are payable at the beginning of each
year. The lessee is aware of the lessor’s implicit rate of return.
(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.) Situation
1 2 3...
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