Question

In: Accounting

On 1 January 2015, Finley entered into an agreement to lease a boat. The term of...

On 1 January 2015, Finley entered into an agreement to lease a boat. The term of the lease was four years. Annual lease
payments of Rs. 10,000 are payable in advance. The interest rate implicit in the
lease is 7.5%. Finley is responsible for insuring and maintaining the boat throughout
the term of the lease. the expected salvage value of the boat is 2000.
Instructions:
(a)Tell whether this is operating or finance lease and give two reasons. Also determine present value of minimum lease payments.
(b) prepare lease amortization schedule
(c) prepare depreciation schedule
(d) prepare entries for all years for lessee including deprecaition entries and dispose off entry.
(e) prepare all entries for lessor
(f) prepare T-accounts for lease liability ans allowance for depreciation on behalf of lessee
(g) prepare T-account for lease recievable on behalf of lessor
(h) prepare balance sheet extract for bpth lessor and lessee at december31st, 2016.

the economic life of the boat is 5 years.

Solutions

Expert Solution

Note: Since in the question the cost of the Boat is not given, I assumed the cost is equal to the Present Value of the Minimum Lease payments discounted at a 7.5% rate = $10000*3.6 = $36,000

Since the PV of the minimum lease payments = Cost of the Boat, the lease can be treated as Finance Lease.

Also given that lig=fe of the boat is 5 years, the lease period is 4 years. Hence more than 75% of the life is covered in the lease. Hence the lease is Finance lease.

Please Please Upvote if you like the answer.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Question: On 1 January 2015, Finley entered into an agreement to lease a boat. The fair...
Question: On 1 January 2015, Finley entered into an agreement to lease a boat. The fair value of the boat was Rs. 36,000 and the term of the lease was four years. Annual lease payments of Rs. 10,000 are payable in advance. The interest rate implicit in the lease is 7.5%. Intructions: (a) determine whether this is operating or finance lease. (b) prepare lease amortization schedule (c) prepare journal entries on behalf of lessee for all years including depreciation entries...
ABC entered into a lease agreement with XYZ on 1 Jan 2015. The leased asset was...
ABC entered into a lease agreement with XYZ on 1 Jan 2015. The leased asset was purchased by XYZ for 180,000£ on 1 Jan 2015. It has a useful economic life of 5 years. The lease period is 4 years. ABC pays XYZ four annual instalments of 60,000£ each payable at the beginning of each financial year starting on 1 Jan 2015. The cost of capital for ABC is expected to be 8% per annum for the foreseeable future. The...
On 1 January 20x1, Success Co. entered into a lease agreement to lease a highly specialised...
On 1 January 20x1, Success Co. entered into a lease agreement to lease a highly specialised machinery (which had a useful life of 20 years) from Victory Leasing Co. Victory Leasing Co. had bought the new machinery for a cash consideration of $1,122,095. The terms of the lease agreement included the following: Non-cancellable lease term of 15 years, with a renewal option for another 5 years Lease rental of $100,000 per year for the first 15 years and $50,000 per...
On January 1, 2018 WAG entered into a non-cancellable lease agreement with PE for the lease...
On January 1, 2018 WAG entered into a non-cancellable lease agreement with PE for the lease of specialized laboratory equipment designed to draw blood to perform health tests for their customers. The lease agreement requires WAG to make beginning of the year payments for the 5-year term of the lease. The fair value of the equipment at lease inception is $25,418,156. WAG guarantees to PE that the residual value of the equipment at the end of the term of the...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease term Annual lease payments are $10,000 First payment is on January 1, 2020 and the other payments are on 31 December each year At the end of the lease the leased asset will revert to the lessor The asset’s economic life is estimated at 10 years Winthrop could have obtained equivalent financing from its bank at a rate of 5% Winthrop’s fiscal year end...
Grand Berhad sign a lease agreement with Branded Berhad on 1 January 2015 to lease a...
Grand Berhad sign a lease agreement with Branded Berhad on 1 January 2015 to lease a drying machine. The lease term is non- cancellable lease for 5 years with bargain purchase option and the title of the machine is to be passed to Branded Bhd at the end of the lease term. The fair value of the machine as at 1 January 2015 was RM90,000 with the initial direct cost of RM2,500 paid by Grand Bhd. The terms of lease...
Lockhard Corporation entered into a lease agreement on January 1, 2019, to provide Cominsky Company with...
Lockhard Corporation entered into a lease agreement on January 1, 2019, to provide Cominsky Company with a piece of equipment. The terms of the lease agreement were as follows: 1. The lease is to be for 3 years with the rental payments of $10,521 to be made at the beginning of each year. 2. The equipment has a fair value of $55,000, a book value of $40,000, and an economic life of 8 years. 3. At the end of the...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT