Question
In: Accounting
Pyre Company leased equipment to the Poland Company on January 1, 2020, for a ten-year period....
Pyre Company leased equipment to the Poland Company on January 1, 2020, for a ten-year period. Equal annual payments under the lease are $240,000 and are due on January 1 of each year beginning on the date the lease was signed. The rate of interest used by Pyre to compute the lease payments is 9%. The lease receivable before the first payment is $1,678,860, and the cost of the equipment on Pyre’s accounting records was $1,488,000.
Assuming that the lease is appropriately recorded as a sale for accounting purposes, write the entries required on the date the lease is signed and on December 31, 2020.
|
Date |
Account Titles |
Debit |
Credit |
Solutions
Expert Solution
| Year | Payments (Cash flows) | Present Value Factor @9%p.a. | Discounted Cash flows/ Present value | |
| 1 | $ 240,000 | 1 | $ 240,000 | |
| 2 | $ 240,000 | 0.91743 | $ 220,183 | |
| 3 | $ 240,000 | 0.84168 | $ 202,003 | |
| 4 | $ 240,000 | 0.77218 | $ 185,324 | |
| 5 | $ 240,000 | 0.70843 | $ 170,022 | |
| 6 | $ 240,000 | 0.64993 | $ 155,984 | |
| 7 | $ 240,000 | 0.59627 | $ 143,104 | |
| 8 | $ 240,000 | 0.54703 | $ 131,288 | |
| 9 | $ 240,000 | 0.50187 | $ 120,448 | |
| 10 | $ 240,000 | 0.46043 | $ 110,503 | |
| Total | $ 2,400,000 | $ 1,678,860 | ||
| Lease Amortisation Schedule: | ||||
| Beg of year |
Annual Lease Payments Plus expected residual value |
Interest on lease receivable | Recovery of lease receivable | Lease receivable |
| 0 | $ - | $ - | $ - | $ 1,678,860 |
| 1 | $ 240,000 | $ - | $ 240,000 | $ 1,438,860 |
| 2 | $ 240,000 | $ 129,497 | $ 110,503 | $ 1,328,358 |
| 3 | $ 240,000 | $ 119,552 | $ 120,448 | $ 1,207,910 |
| 4 | $ 240,000 | $ 108,712 | $ 131,288 | $ 1,076,622 |
| 5 | $ 240,000 | $ 96,896 | $ 143,104 | $ 933,518 |
| 6 | $ 240,000 | $ 84,017 | $ 155,983 | $ 777,534 |
| 7 | $ 240,000 | $ 69,978 | $ 170,022 | $ 607,512 |
| 8 | $ 240,000 | $ 54,676 | $ 185,324 | $ 422,189 |
| 9 | $ 240,000 | $ 37,997 | $ 202,003 | $ 220,185 |
| 10 | $ 240,000 | $ 19,815 | $ 220,185 | $ 0 |
| Note: As the lease payment is made at the beginning of the year, interest will be calculated on Opening lease liability less lease payment . | ||||
| a | In the books of Lessor | |||
| Journal Entries for Sale type lease | ||||
| Date | Particulars | Debit | Credit | |
| 01-01-20 | Lease Receivable | $ 1,678,860 | ||
| Cost of Sales less PV of unguaranteed residual value | $ 1,488,000 | |||
| Gain on sale of Equipment | $ 190,860 | |||
| (To record asset given on lease under sale type lease ) | ||||
| Cost of truck is not given | ||||
| 01-01-20 | Cash | $ 240,000 | ||
| Lease Receivable | $ 240,000 | |||
| (To record 1st lease payment received) | ||||
| 31-12-20 | Lease Receivable | $ 129,497 | ||
| Interest income | $ 129,497 | |||
| (To record Interest income on lease receivable) | ||||
| · Please do upvote if you found the answer useful. | ||||
| · Feel free reach in the comment section in case of any clarification or queries. | ||||
ekkarill92 answered 1 year agoRelated Solutions
Grant Company leased machinery to Tim Company on July 1, 2015, for a ten-year period expiring...
Grant Company leased machinery to Tim Company on July 1, 2015,
for a ten-year period expiring June 30, 2025. Equal annual payments
under the lease are $150,000 and are due on July 1 of each year.
The first payment was made on July 1, 2013. The rate of interest
used by Grant and Tim is 9%. The cash selling price of the
machinery is $1,050,000 and the cost of the machinery on Grant's
accounting records was $930,000. Prepare all of...
On January 1 of Year 1, Kamili Company leased a truck for a 7-year period under...
On January 1 of Year 1, Kamili Company leased a truck for a
7-year period under a capital lease and agreed to pay an annual
lease payment of $6,000 at the end of each year. The interest rate
associated with this capital lease is 12% compounded annually. On
December 31 of Year 1,the first $6,000 payment was made as
scheduled. The entry to record the payment of the first $6,000
payment on December 31 of Year 1includes
"SunlandCompany leased equipment to the Polan Company on July 1, Year 18, for a 10-year period...
"SunlandCompany leased equipment to the Polan Company on July 1,
Year 18, for a 10-year period expiring June 30, Year 28. Equal
annual payments under the lease are $246000 and are due on July 1
of each year. The first payment was made on July 1, Year 18. The
rate of interest contemplated by Sunland and Polan is 8%. The lease
receivable before the first payment is$1740000 and the cost of the
equipment on Sunland s accounting records was $1548000....
On January 1, 2020, Crane Company leased equipment to Flynn Corporation. The following information pertains to...
On January 1, 2020, Crane Company leased equipment to Flynn
Corporation. The following information pertains to this
lease.
1.
The term of the non-cancelable lease is 6 years. At the end of
the lease term, Flynn has the option to purchase the equipment for
$3,000, while the expected residual value at the end of the lease
is $5,000.
2.
Equal rental payments are due on January 1 of each year,
beginning in 2020.
3.
The fair value of the equipment...
On January 1, 2020, Sunland Company leased equipment to Flynn Corporation. The following information pertains to...
On January 1, 2020, Sunland Company leased equipment to Flynn
Corporation. The following information pertains to this lease. 1.
The term of the non-cancelable lease is 6 years. At the end of the
lease term, Flynn has the option to purchase the equipment for
$2,000, while the expected residual value at the end of the lease
is $6,000. 2. Equal rental payments are due on January 1 of each
year, beginning in 2020. 3. The fair value of the equipment...
On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment...
On January 1, 2020, the first day of its accounting
year, Lessor Inc., leased certain equipment at an annual payment of
$10,254.19, receivable at the beginning of each year for 10 years.
The first payment was received immediately. The equipment has an
estimated useful life of 12 years and no residual value. Lessor’s
implicit rate is 6%. Lessor had no other costs associated with this
lease and properly classified the lease as a sales-type lease. The
leased equipment was carried...
On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment...
On January 1, 2020, the first day of its accounting year, Lessor
Inc., leased certain equipment at an annual payment of $10,254.19,
receivable at the beginning of each year for 10 years. The first
payment was received immediately. The equipment has an estimated
useful life of 12 years and no residual value. Lessor’s implicit
rate is 6%. Lessor had no other costs associated with this lease
and properly classified the lease as a sales-type lease. The leased
equipment was carried...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending...
On January 1, 2018, Nguyen Electronics leased equipment from
Nevels Leasing for a four-year period ending December 31, 2021, at
which time possession of the leased asset will revert back to
Nevels. The equipment cost Nevels $824,368 and has an expected
economic life of five years. Nevels expects the residual value at
December 31, 2018, will be $100,000. Negotiations led to the lessee
guaranteeing a $140,000 residual value.
Equal payments under the lease are $200,000 and are due on December...
On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period...
On January 1, 2018, Maywood Hydraulics leased drilling equipment
from Aqua Leasing for a four-year period ending December 31, 2021,
at which time possession of the leased asset will revert back to
Aqua. The equipment cost Aqua $434,644 and has an expected economic
life of five years. Aqua expects the residual value at December 31,
2018, to be $70,000. Negotiations led to Maywood guaranteeing a
$100,000 residual value.
Equal payments under the lease are $140,000 and are due on December...
On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending...
On January 1, 2018, Nguyen Electronics leased equipment from
Nevels Leasing for a four-year period ending December 31, 2018, at
which time possession of the leased asset will revert back to
Nevels. The equipment cost Nevels $843,368 and has an expected
economic life of five years. Nevels expects the residual value at
December 31, 2018, will be $119,000. Negotiations led to the lessee
guaranteeing a $178,000 residual value. Equal payments under the
lease are $219,000 and are due on December...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Singh Development Co. is deciding whether to proceed with Project X. The cost would be $12...
- CS2123 Data Structures - Fall 2019 Assignment 1: Function Runtimes Table Due 9/11/19 by 11:59pm Completing...
- Question 2. Design a 16-1 MUX using any number of lower MUXs, such as 8-1 or...
- . Write a function that takes, as arguments, two objects, value1 and value2. If
- Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market...
- Consider the distillation of ethanol (C2H5OH) and the combustion of ethanol . Use a bullet point...
- 1.How does Economic exposure to exchange rate movements affect the capital budgeting of a firm? Provide...
ADVERTISEMENT