Question
In: Accounting
Company A (a lessee) enters into a contract with Company B (a lessor) to lease equipment...
Company A (a lessee) enters into a contract with Company B (a lessor) to lease equipment for a seven-year period. Company A will use the equipment in its manufacturing operations. The lease requires Company A to make annual lease payments of $100,000 on December 31. At the end of the lease, the asset reverts to Company B.
Additional Information:
Company A’s incremental borrowing rate 6%
Company B’s implicit rate in the lease (known to Co. A) 7%
Fair value of asset at lease commencement $632,342
Residual value of asset at end of lease (unguaranteed) $150,000
Economic life of asset at commencement of lease 10 years
Present value factors: 6% 7%
Ordinary annuity, 7 periods 5.58238 5.38929
Single sum, 7 periods .66506 .62275
1. What type of lease is this to Company B?
2. Would your answer to question 1 be affected by a third party guaranteeing the $150,000 residual value?
3. What are the required journal entries for the first year of the lease? (Company B’s cost of the equipment is $550,000)
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Company A (a lessee) enters into a contract with Company B (a lessor) to lease equipment...
Company A (a lessee) enters into a contract with Company B (a
lessor) to lease equipment for a seven-year
period. Company A will use the equipment in its
manufacturing operations. The lease requires Company A
to make annual lease payments of $100,000 on December
31. At the end of the lease, the asset reverts to
Company B.
Additional Information:
Company A’s incremental borrowing
rate 6%
Company B’s implicit rate in the lease (known to Co.
A) 7%
Fair value of asset at lease
commencement $632,342
Residual...
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for Lessor at the end of the lease term. Under the lease:
Lessor receives annual lease payments of $25,000, with the
first one payable at the commencement of the lease and one payment
annually at the lease anniversary date thereafter.
Lessor expects the residual value of the equipment to be...
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Lessee has agreed to pay $44,800 annually beginning immediately on
January 1, 2020. The lease includes an option for the lessee to
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1.
The lease term is 5 years. The lease is noncancelable and
requires annual rental receipts of $100,000 to be made in advance
at the beginning of each year.
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Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis...
Edom Company, the lessor, enters into a lease with Davis Company
to lease equipment to Davis beginning January 1, 2016. The lease
terms, provisions, and related events are as follows:
1.
The lease term is 5 years. The lease is noncancelable and
requires annual rental receipts of $100,000 to be made in advance
at the beginning of each year.
2.
The equipment costs $313,000. The equipment has an estimated
life of 6 years and, at the end of the lease...
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis...
Edom Company, the lessor, enters into a lease with Davis Company
to lease equipment to Davis beginning January 1, 2016. The lease
terms, provisions, and related events are as follows:
1. The lease term is 5 years. The lease is noncancelable and
requires annual rental receipts of $100,000 to be made in advance
at the beginning of each year.
2. The equipment costs $313,000. The equipment has an estimated
life of 6 years and, at the end of the lease...
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis...
Edom Company, the lessor, enters into a lease with Davis Company
to lease equipment to Davis beginning January 1, 2016. The lease
terms, provisions, and related events are as follows:
1.
The lease term is 5 years. The lease is noncancelable and
requires annual rental receipts of $100,000 to be made in advance
at the beginning of each year.
2.
The equipment costs $313,000. The equipment has an estimated
life of 6 years and, at the end of the lease...
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning...
Berne Company (lessor) enters into a lease with Fox Company to
lease equipment to Fox beginning January 1, 2016. The lease terms,
provisions, and related events are as follows:
1. The lease term is 4 years. The lease is noncancelable and
requires annual rental payments of $50,000 to be made at the end of
each year.
2. The equipment costs $130,000. The equipment has an estimated
life of 4 years and an estimated residual value at the end of the...
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning...
Berne Company (lessor) enters into a lease with Fox Company to
lease equipment to Fox beginning January 1, 2016. The lease terms,
provisions, and related events are as follows:
1.
The lease term is 4 years. The lease is noncancelable and
requires annual rental payments of $50,000 to be made at the end of
each year.
2.
The equipment costs $130,000. The equipment has an estimated
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Lessor leasing company agrees to lease equipment to Lessee corp. on Jan 1, 2019, both Lessor...
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on Jan 1, 2019, both Lessor and Lessee follows IFRS. The following
information relates to the lease agreement:
the lease term is 7 years, no renewal,
Lessor acquired the equipment this day Jan 1, 2019 for $560,000
cash, the useful life 10 years
at the end of the term the equipment to be returned to the
lessor with guaranteed residual value of $40,000
the lease agreement require annual rental payments...
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