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
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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
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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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