Question
In: Finance
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey Motors for a six-year...
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick’s had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension option. Annual lease payments are $16,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. Assume that at the beginning of the third year, January 1, 2023, Rick’s had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was “reasonably certain.” The relevant interest rate at that time was 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: 1. Prepare the journal entry, if any, at the beginning of the third year for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, at the beginning of the third year for the lessor to account for the reassessment.
Solutions
Working: -
jeff jeffy answered 1 year agoRelated Solutions
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey Motors for a six-year...
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey
Motors for a six-year period with an option to extend the lease for
three years. Rick’s had no significant economic incentive as of the
beginning of the lease to exercise the 3-year extension option.
Annual lease payments are $14,000 due on December 31 of each year,
calculated by the lessor using a 7% discount rate. Assume that at
the beginning of the third year, January 1, 2023, Rick’s...
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey Motors for a seven-year...
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey
Motors for a seven-year period with an option to extend the lease
for three years. Rick’s had no significant economic incentive as of
the beginning of the lease to exercise the 3-year extension option.
Annual lease payments are $15,000 due on December 31 of each year,
calculated by the lessor using a 4% interest rate. The agreement is
considered an operating lease. (FV of $1, PV of $1,...
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey Motors for a seven-year...
On January 1, 2021, Rick’s Pawn Shop leased a truck from Corey
Motors for a seven-year period with an option to extend the lease
for three years. Rick’s had no significant economic incentive as of
the beginning of the lease to exercise the 3-year extension option.
Annual lease payments are $15,000 due on December 31 of each year,
calculated by the lessor using a 4% interest rate. The agreement is
considered an operating lease. (FV of $1, PV of $1,...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley Motors for a six-year...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley
Motors for a six-year period with an option to extend the lease for
three years. Rick’s had no significant economic incentive as of the
beginning of the lease to exercise the 3-year extension option.
Annual lease payments are $10,000 due on December 31 of each year,
calculated by the lessor using a 5% discount rate. Assume that at
the beginning of the third year, January 1, 2020, Rick’s...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley Motors for a six-year...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley
Motors for a six-year period with an option to extend the lease for
three years. Rick’s had no significant economic incentive as of the
beginning of the lease to exercise the 3-year extension option.
Annual lease payments are $27,000 due on December 31 of each year,
calculated by the lessor using a 4% discount rate. Assume that at
the beginning of the third year, January 1, 2020, Rick’s...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley Motors for a five-year...
On January 1, 2018, Rick’s Pawn Shop leased a truck from Chumley
Motors for a five-year period with an option to extend the lease
for three years. Rick’s had no significant economic incentive as of
the beginning of the lease to exercise the 3-year extension option.
Annual lease payments are $15,500 due on December 31 of each year,
calculated by the lessor using a 5% interest rate. The agreement is
considered an operating lease. (FV of $1, PV of $1,...
On January 1, 2018, Johns Shop leased a truck from Madix Motors for a six-year period....
On January 1, 2018, Johns Shop leased a truck from Madix Motors
for a six-year period. The useful life of the truck is 9 yrs.
Annual lease payments are $10,000 due on December 31 of each year,
calculated by the lessor using a 5% discount rate Assume that at
the end of the second year, January 1, 2020, John's and Madix
Motors had agreed to extend the lease term by three years. The
relevant interest rate at that time was...
At January 1, 2021, Alpha leased restaurant equipment from Payne Corporation under a six-year lease agreement...
At January 1, 2021, Alpha leased restaurant equipment
from Payne Corporation under a six-year lease agreement in a
finance lease. The lease agreement specifies annual payments of
$40,000
beginning January 1, 2021, the beginning of the lease, and at each
December 31 thereafter through 2025. The equipment was acquired
recently by Payne at a cost of $250,000 and was expected to
have a useful life of eight years with no salvage value at the end
of its life. Payne seeks...
On December 31, 2021, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid...
On December 31, 2021, Yard Art Landscaping leased a delivery
truck from Branch Motors. Branch paid $36,000 for the truck. Its
retail value is $105,145.
The lease agreement specified annual payments of $29,000 beginning
December 31, 2021, the beginning of the lease, and at each December
31 through 2024. Branch Motors’ interest rate for determining
payments was 10%. At the end of the four-year lease term (December
31, 2025) the truck was expected to be worth $11,000. The estimated
useful...
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
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Consider a buffer system consisting of Benzoic acid (pKa = 4.20) and sodium benzoate, a) Would...
- Decision Variables S T Minimize 1.8S + 2.20T Subject to: Potassium 5S + 8T >= 200...
- A neurologist needs to counsel a stroke victim and her husband about possible outcomes, treatment options,...
- Case Study: Personal Beliefs in the Workplace Don Shakow was a prominent professional who worked in...
- 1: Competency framework usage is the modern best practice in management. What is meant by competency...
- A 19.34 g mixture of sugar (C12H22O11) and table salt (NaCl) is dissolved in 231 g...
- Young and Company claims that its pressurized diving bell will, on average, maintain its integrity to...
ADVERTISEMENT