On January 1, Year One, Landon Corporation decides to lease a truck for $20,000 per year...

On January 1, Year One, Landon Corporation decides to lease a truck for $20,000 per year for three years. The annual incremental borrowing rate for Landon is 10 percent. The truck has a life of five years. Landon cannot buy or obtain title to the truck. The present value of an annuity due of $1 for three years at an annual interest rate of 10 percent is $2.73554. At the last moment, Landon changes the contract to four years instead of three. No other changes are made. The present value of an annuity due of $1 for four years at an annual interest rate of 10 percent is $3.48685.

a. How did the change from three years to four years affect the expense to be reported by Landon

in Year One?

b. How did the change from three years to four years affect the expense to be reported by Landon

in Year Two?

c. After changing the contract to four years, what net book value will be shown for the leased truck

at the end of Year One?

d. After changing the contract to four years, what lease liability balance will be shown at the end of

Year One?

Expert Solution

ekkarill92 answered 1 year ago

Jones Corporation leases a truck starting January 1, 20x1 from Lester Inc. The six year lease...

Jones Corporation leases a truck starting January 1, 20x1 from Lester Inc. The six year lease requires annual payments of $12,000 at the beginning of each year. The economic life of the truck is ten years. The present value of the lease payments is $60,000. Use straight line depreciation. Lester Inc. purchased the machine for $54,000 and it has a fair value at the commencement of the lease of $60,000. The interest rate (known to both parties) is 8%. The...

Lake Company bought a used delivery truck on January 1, 2017, for $20,000. The delivery truck...

Lake Company bought a used delivery truck on January 1, 2017, for $20,000. The delivery truck was expected to remain in service 4 years (50,000 miles). Lake's accountant estimated that the truck’s residual value would be $2,000 at the end of its useful life. The truck traveled 14,000 miles the first year and 18,000 miles the second year. Calculate depreciation expense for the truck for 2017 and 2018 using the • Straight-line method. • Double-declining balance method • Units of...

On January 1, 2020, Bristol Corporation issued one 3-year, 10% (stated rate), $20,000 bond at a...

On January 1, 2020, Bristol Corporation issued one 3-year, 10% (stated rate), $20,000 bond at a price which would yield the purchaser an 9% return. Payment of interest is made on December 31. The year end is December 31. The company uses the ‘effective interest’ method to account for bond interest. Prepare the entry to record the sale of the bond on January 1, 2020. Prepare a bond amortization schedule in good form for the bond. Prepare the entry on...

Derek Corporation was organized on January 1, 2017. During its first year, the corporation issued 20,000...

Derek Corporation was organized on January 1, 2017. During its first year, the corporation issued 20,000 shares of $5 shares par value preferred stock and 200,000 shares of $1 par value common stock. At December 31, the company declared the following cash dividends: 2017$ 4,000 2018$13,000 2019$28,000 INSTRUCTIONS: a) Show the allocation of dividends to each class of stock, assuming the preferred stock dividend is 5% and not cumulative. b)Show the allocation of dividends to each class of stock,...

. On December 31, Year One, the Abertion Company decides to lease a piece of equipment...

. On December 31, Year One, the Abertion Company decides to lease a piece of equipment rather than buy it. The lease is for 10 years. Payments are $22,000 each December 31 beginning on December 31, Year One. Abertion has an annual incremental borrowing rate of 9 percent. The present value of an annuity due of $1 at 9 percent for 10 periods is $6.99525. a. Assume this lease is an operating lease. What journal entries are made in Year...

Ram Corporation purchased a new truck on January 1, 2020 for $50,000. The truck is expected to...

Ram Corporation purchased a new truck on January 1, 2020 for $50,000. The truck is expected to last five years with a residual value of $10,000. Using straight-line depreciation, show the effect on the income statement and balance sheet of this transaction over the next five years. Income statement 2020 2021 2022 2023 2024 Depreciation expense $8000 $8000 $8000 $8000 $8000 Balance Sheet 2020 2021 2022 2023 2024 Equipment $ $ $ $ $ Less: accumulated Depreciation ( ) ( ) ( ) ( ) ( ) Book value $ $ $ $ $ Part II – Chapter 8 Company A Company B Company C Days sales in receivables 8.3 days 39.9 days 60.3 days Days sales in inventory 2.3...

On January 1, 2019, Coleus Corporation entered into a ten-year lease agreement to be accounted for...

On January 1, 2019, Coleus Corporation entered into a ten-year lease agreement to be accounted for as a finance lease under ASC 842. The following summarizes the agreement: Payments of $30,000 are due at the beginning of each year; the first payment was made on January 1, 2019. The leased asset has an estimated useful life of 15 years. The implicit interest rate in the lease is known by Coleus to be 10%. Coleus's incremental borrowing rate is 12%. Coleus...

On 1 January 2013, Ford Lease Co. leased a truck with an estimated economic life of...

On 1 January 2013, Ford Lease Co. leased a truck with an estimated economic life of five years to Cubic-Haul for a period of 5 years. The normal selling price of the truck was $47,600. Ford Lease Co. incurred costs of $35,000 in manufacturing the truck. Cubic-Haul agreed to pay monthly rentals of $1,000 at the beginning of each month and was responsible for all maintenance, insurance, etc. Assume that the unguaranteed full residual value of the truck at the...

On January 1, Year 1, Friedman Company purchased a truck that cost $52,000. The truck had...

On January 1, Year 1, Friedman Company purchased a truck that cost $52,000. The truck had an expected useful life of 200,000 miles over 8 years and an $9,000 salvage value. During Year 2, Friedman drove the truck 27,000 miles. Friedman uses the units-of-production method. What is depreciation expense in Year 2? (Do not round intermediate calculations.): rev: 11_10_2018_QC_CS-147760 Multiple Choice $5,805 $7,020 $5,375 $6,500 17)Dinkins Company purchased a truck that cost $72,000. The company expected to drive the truck...

On January 1, 2017, Cullumber Corporation signed a 5-year noncancelable lease for a machine. The terms...

On January 1, 2017, Cullumber Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Cullumber to make annual payments of $8,200 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Cullumber uses the straight-line method of depreciation for all of its plant...

Question