Question

In: Accounting

Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for...

Salaur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Salaur receive title to the computers during or at the end of the lease term. TSP will lease the returned computers to other customers. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows:

Lease DataYearly rental: $3,057.25

Lease term: 3 years

Estimated economic life: 5 years

Purchase option: $3,000 at end of 3 years, which approximates fair value

Renewal option: 1 year at $1,500; no penalty for nonrenewal; standard renewal clause

Fair value at commencement: $10,000

Cost of asset to lessor: $8,000

Residualvalue:

Guaranteed: $0

Unguaranteed: $3,000

Lessor's implicit rate (known by the lessee)12%Estimated fair value at end of lease: $3,000

Answer the following questions:


1 . Briefly discuss the impact of the accounting for this lease as a finance or operating lease for two common ratios: return on assets and debt to total assets.

2.What fundamental quality of useful information is being addressed when a company like Salaur capitalizes all leases with terms of one year or longer?

Solutions

Expert Solution

All above analysis, it si clear that above LEASE is operating lease and NOT Finance lease

Part B - Ans

Dear Student - balance Journal entry I will upload shortly ,

Thank You !!

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

(b) You have been offered the opportunity to purchase a start up company building electric cars...
(b) You have been offered the opportunity to purchase a start up company building electric cars for the Australian market called Green Motors P/L. Your initial investment is $22,000,000. The term of the project is 5 years. The project has an expected rate of return of 10% pa. All expected cash flows for the project are below and you have an expected rate of return of 10% pa. End of year Cash flow ($mil) 1 1.8 2 3.0 3 6.5...
Air Atlantic has been offered a 3 year-old jet airlines under a 12-year arrangement. The lease...
Air Atlantic has been offered a 3 year-old jet airlines under a 12-year arrangement. The lease requires AA to make annual lease payments of $500,000 beginning of each of the next 12 years. Determine the present value of the lease payments if the opportunity cost of funds is 14 percent? a. 2,543,000 b. 3,226,200 c.3,966,754 Please, show all the procedure. Thanks
A company is evaluating a revenue arrangement to determine proper revenue recognition. The contract is for...
A company is evaluating a revenue arrangement to determine proper revenue recognition. The contract is for manufacturing 20 race cars. The customer needs the cars by May 1, 2021. The customer provides a bonus payment of $320,000 if all cars are delivered by the May 1 deadline. The bonus is reduced by a fourth of the total available bonus amount (i.e., reduced by $320,000 divided by 4) each week that the cars are delivered after the deadline until no bonus...
You are evaluating to make an investment in a small biotech start-up which will require an...
You are evaluating to make an investment in a small biotech start-up which will require an investment of $1.7 million. The start-up is expecting to generate free cash flows of $200,000 during the first year. After one year, the insurance companies will decide if the start-up’s drug will be cover in their plans or not. If they decide to not cover the drug, the company will be able to generate free cash flows of $400,000 during the next 12 years...
You are evaluating to make an investment in a small biotech start-up which will require an...
You are evaluating to make an investment in a small biotech start-up which will require an investment of $2.1 million. The start-up is expecting to generate free cash flows of $200,000 during the first year. After one year, the insurance companies will decide if the start-up’s drug will be cover in their plans or not. If they decide to not cover the drug, the company will be able to generate free cash flows of $400,000 during the next 12 years...
You are evaluating to make an investment in a small biotech start-up which will require an...
You are evaluating to make an investment in a small biotech start-up which will require an investment of $1.7 million. The start-up is expecting to generate free cash flows of $200,000 during the first year. After one year, the insurance companies will decide if the start-up’s drug will be cover in their plans or not. If they decide to not cover the drug, the company will be able to generate free cash flows of $400,000 during the next 12 years...
You are evaluating to make an investment in a small biotech start-up which will require an...
You are evaluating to make an investment in a small biotech start-up which will require an investment of $2.1 million. The start-up is expecting to generate free cash flows of $200,000 during the first year. After one year, the insurance companies will decide if the start-up’s drug will be covered in their plans or not. If they decide to not cover the drug, the company will be able to generate free cash flows of $400,000 during the next 12 years...
Louisiana Company began an operating lease arrangement with Delaware Industries, which was slated to begin on...
Louisiana Company began an operating lease arrangement with Delaware Industries, which was slated to begin on January 1, at monthly lease payments of $10,000. However, Delaware’s negligence prevented Louisiana from moving in on time—since it failed to clean up the place adequately enough to earn a Certificate of Occupancy from the township. Thus, on January 1, Louisiana spent $5,000 for leasehold improvements, which enabled them to obtain the needed Certificate of Occupancy on April 1. In any event, Louisiana paid...
When evaluating a small start-up company, valuation becomes more art than science. Support your position with...
When evaluating a small start-up company, valuation becomes more art than science. Support your position with evidence or examples.
On January 1 year 1, superstar company leased a building to pzed  Inc. The lease arrangement is...
On January 1 year 1, superstar company leased a building to pzed  Inc. The lease arrangement is for 20 years. The building is expected to have no residual value at the end of the lease. The leased building has a cost of $21,000,000 and was purchased for cash on January 1, year 1. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. Lease payments are $1,778,000 per year and are made...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT