Question

In: Accounting

A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000...

A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a six-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 5%. (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:
a. Determine the present value of the lease upon the lease's inception.
b. Create a partial amortization through the first payment on January 1, 2017.
c. If the lessee’s fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31?

Solutions

Expert Solution

(c)


Related Solutions

A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000...
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 8%. (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: a. Determine the present value of the lease upon the...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000...
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%. (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: c. If the lessee’s fiscal year is the calendar year,...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $24,000...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $24,000 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 5%. (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: a. Determine the present value of the lease upon the...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $25,000...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $25,000 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, 2016, the beginning of the lease. Lease payments will occur on January 1 each year thereafter. The interest rate is 5%. a. Determine the present value of the lease upon the lease's inception. b. Create a partial amortization through the second payment on January 1, 2017. c....
A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a five-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 4%. (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: a. Complete the amortization schedule for the first two payments....
A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, 2016, the beginning of the lease. The interest rate is 5%. The lessor’s fiscal year is the calendar year. The lessor manufactured this asset at a cost of $125,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000...
A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a eight-year lease term (also the asset’s useful life), with the first payment at January 1, 2016, the beginning of the lease. The interest rate is 4%. The lessor’s fiscal year is the calendar year. The lessor manufactured this asset at a cost of $128,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of...
A lessor and a lessee signed a lease agreement that qualifies as a finance/sales-type lease and...
A lessor and a lessee signed a lease agreement that qualifies as a finance/sales-type lease and calls for annual lease payments of $26,269 over a six-year lease term. The asset's estimated useful life is also six years. The first payment is due on January 1st, which is the beginning of the lease. The interest rate is 5%. Based on these facts, the present value of the lease payments (which are equal to the value of the asset to the lessor)...
On January 1, 2020 we a sign lease agreement. It calls for annual rental payments of...
On January 1, 2020 we a sign lease agreement. It calls for annual rental payments of $1,137 at the beginning of each year of the 3-year lease beginning on 1/1/20. The equipment has an economic useful life of 7 years; a fair value of $7,000; a book value of $5,000. The lessor expects a residual value of $4,500 at the end of the lease term. We have an incremental borrowing rate of 8%. There is no bargain purchase option. Ownership...
Western Company leased equipment from Sunshine Industries. The lease agreement qualifies as a finance lease and...
Western Company leased equipment from Sunshine Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $120,000 over a five-year lease term (also the asset’s useful life), with the first payment at January 1, 2018, the beginning of the lease. The interest rate is 9%. The asset being leased cost Sunshine $500,000 to produce. The total increase in earnings (pretax) on Sunshine’s December 31, 2018, income statement would be: a. $0 b. $35,534 c. $43,755...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT