Question

In: Accounting

Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 20%...

Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 20% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2018, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $1,051,830. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through a 20-year service agreement with Midway Service Company requiring 20 annual payments of $4,000 beginning December 31, 2018. Progressive insurance Company charges Branif $4,000 annually for hazard insurance coverage on the equipment. Both companies use straight-line depreciation or amortization. (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:
Prepare the appropriate entries for both the lessee and lessor to record the second lease payment and depreciation on December 31, 2019, under each of three independent assumptions:

1. The lessee pays maintenance costs as incurred. The lessor pays insurance premiums as incurred. The lease agreement requires annual payments of $180,000.
2. The contract specifies that the lessor pays maintenance costs as incurred. The lessee’s lease payments were increased to $184,000 to include an amount sufficient to reimburse these costs.
3. The lessee’s lease payments of $184,000 included $4,000 for hazard insurance on the equipment rather than maintenance.

Solutions

Expert Solution

journal entry

case 1

lessor pays maintaince costs as incured .lessor pays insurance premium

books of lesseee

lease liabilty 4695

interest expense 175306

cash 180000

(paid lease rent with interest expense)

maintance expense 4000

cash 40000

(maintance expense paid)

depriciation 43826

lease asset 43826

(depriciation calculated)

in the bookks of lessor

cash a/c 180000

lease receivable 4694

interest income 175306

maintaince 4000

cash 4000

(maintaince paid)

asset 43826

depriciation

(asset amortized)

WHEN MAINTENCE EXPENCE PAIDB BY LESSOR

BOOKS OF LESSESEE

Llease liability 8695

interest expense 17306

cash 180000

(lease rent paid)

maintaice expense 4000

cash 4000

depriciation 43826

lease asset 43826

in the books of lessor

cash 184000

lease liability 8604

interst expense 175306

insurance 4000

cash 4000

depriciation 43826

cash 43826

when lesses leasee include insurance and lease amount 184000

leease liability 8604

interst 175306

cash 184000

depriciation 43826

asset 43826

same entry as above in books of lessor

lease rent received)

insurance premium paid 4000

cash 4000

case 2

when lessors pays maintance cost and lease amount increased to 184000

books of lesseese

lease liability 8695

interest 175306

cash 184000

depriciation   

lease asset

(deprication calculated)

cash 184000

lease recivable 8695

interest 175306

insurance 4000

maintance cost 40000

cash 8000

case 3

lessee s lesee include include

lease liability 8695

interest 175306

cash 1840000

depriciation lease

lease asset

depriciation on lease asset

on the books of lessor

cash 184000

least liability 8695

intrest 175306

maintainence 4000

insurence 4000

cash 8000


Related Solutions

Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10%...
Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2021, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $936,492. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through...
Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10%...
Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2018, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $889,667. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through...
Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10%...
Branif Leasing leases mechanical equipment to industrial consumers under sales-type leases that earn Branif a 10% rate of return for providing long-term financing. A lease agreement with Branson Construction specified 20 annual payments beginning December 31, 2018, the beginning of the lease. The estimated useful life of the leased equipment is 20 years with no residual value. Its cost to Branif was $936,492. The lease qualifies as a finance lease to Branson. Maintenance of the equipment was contracted for through...
The One About Leases Heartbreaker Leasing leases equipment to a variety of businesses. The company's primary...
The One About Leases Heartbreaker Leasing leases equipment to a variety of businesses. The company's primary service is acquiring equipment and leasing it to customers under long-term sales-type lease with a profit. Heartbreaker earns interest under these arrangements at a 10% annual rate. The company recently purchased an electronic typesetting machine for $100,000 and leased it for total consideration of $123,600 to a local publisher, Petty Inc. on January 1, 2018. The lease contract specified annual payments of $32,000 beginning...
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can...
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September 30, 2021, the company leased a delivery truck to a local florist, Anything Grows. The fiscal year for both companies ends December 31. The lease agreement specified quarterly payments of $6,000 beginning September 30, 2021, the beginning...
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can...
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September 30, 2018, the company leased a delivery truck to a local florist, Anything Grows. The lease agreement specified quarterly payments of $3,000 beginning on September 30, 2018, the beginning of the lease, and each quarter (December 31,...
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can...
Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September 30, 2018, the company leased a delivery truck to a local florist, Anything Grows. The lease agreement specified quarterly payments of $3,000 beginning September 30, 2018, the beginning of the lease, and each quarter (December 31, March...
Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing...
Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. Universal earns interest under these arrangements at a 11% annual rate. Universal purchased an electronic typesetting machine on December 31, 2020, for $99,000 and then leased it to Desktop, Inc., a local publisher. The six-year operating lease term commenced January 1, 2021, and the lease contract specified annual payments of $8,900...
Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing...
Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under these arrangements at a 11% annual rate. The company leased an electronic typesetting machine it purchased for $40,900 to a local publisher, Desktop Inc. on December 31, 2017. The lease contract specified annual payments of $8,959 beginning January 1, 2018, the beginning of the lease, and...
National Leasing leases equipment to a variety of businesses. The company's primary service is providing alternate...
National Leasing leases equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. National earns interest under these arrangements at a 10% annual rate. The company leased production equipment it purchased on December 31 2015 for 270000 to a local company, Greenberg Inc. The six year operating lease term commence January 1, 2016, and the lease contract specified annual payments of 24000 beginning December 31,...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT