Question
In: Accounting
On January 1, 2017 Baggins Co. leases gardening equipment to Gamgee Inc. The details are as...
On January 1, 2017 Baggins Co. leases gardening equipment to Gamgee Inc. The details are as follows:
- The lease has a non-cancelable term of 6 years.
- Ownership is not transferred, there is no purchase option, and the asset is not specialized in nature. Collectability of payments is probable.
- The core has a fair value of $245,000, a book value of $200,000, a useful life of 9 years, and a salvage value of $4,000.
- At the end of the lease term, Baggins expects the core to be worth $24,335. None of the equipment’s residual value has been guaranteed by Gamgee.
- Based on assessed risk Baggins has priced an 8% rate of return into the lease. Gamgee’s incremental borrowing rate is 9%.
- Equal payments are due at the beginning of each year. Both firms have December 31st fiscal year ends.
- Determine the payments Baggins will set for the lease.
- Classify this lease for Baggins.
- Prepare Baggins’ amortization table.
- Prepare the 2017 and 2018 journal entries for Baggins.
- Make the final entries Baggins will make for the lease (the December 31, 2022 entries). Assume that the equipment’s value at the conclusion of the lease is $23,000. Also make the entries Baggins would make if the equipment’s value at the end of the lease is $26,000.
- Assuming the equipment came back worth $23,000 at the end of the lease, what is the total profit Baggins records over the entire life of the lease?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
On January 1, 2017 T’Pol Co. leases a warp core to Tucker Inc. The details are as...
On January 1, 2017 T’Pol Co. leases a warp core to Tucker
Inc. The details are as follows:
The lease term is 10 years with annual rental payments of
$3,449 at the end of each year.
Ownership is not transferred, there is no purchase option, and
the asset is not specialized in nature. Collectability
of payments is probable.
The core has a fair value of $34,000, a book value of $22,000,
and a useful life of 15 years.
At the end of...
Rauch Incorporated leases a piece of equipment to Donahue Corporation on January 1, 2017. The lease...
Rauch Incorporated leases a piece of equipment to Donahue
Corporation on January 1, 2017. The lease agreement called for
annual rental payments of $4,892 at the beginning of each year of
the 4-year lease. The equipment has an economic useful life of 6
years, a fair value of $25,000, a book value of $20,000, and both
parties expect a residual value of $8,250 at the end of the lease
term, though this amount is not guaranteed. Rauch set the lease...
Pronghorn Incorporated leases a piece of equipment to Larkspur Corporation on January 1, 2017. The lease...
Pronghorn Incorporated leases a piece of equipment to Larkspur
Corporation on January 1, 2017. The lease agreement called for
annual rental payments at the beginning of each year of the 4-year
lease. The equipment has an economic useful life of 6 years, a fair
value of $26,600, a book value of $21,600, and both parties expect
a residual value of $8,200 at the end of the lease term, though
this amount is not guaranteed. Pronghorn set the lease payments
with...
Timmy Incorporated leases a piece of equipment to Apple Corporation on January 1, 2017. 1. Lease...
Timmy Incorporated leases a piece of equipment to Apple
Corporation on January 1, 2017.
1. Lease term in years. 4
2. Fair Value of equipment 25,100
3. Book Value of equipment 20,100
4. Lease agreement requires equal annual lease payments,
beginning on January 1, 2017 $4,952
Assume accounting periods ends December 31.
5. Estimated economic life of the equipment in years 6
Unguaranteed Residual Value at end of lease term $8100
Expected Residual Value at end of lease term. $8100...
Rauch Inc. leases a piece of equipment to Donahue Corp. on Jan 1 2017. The lease...
Rauch Inc. leases a piece of equipment to Donahue Corp. on Jan 1
2017. The lease agreement called for annual rental payments of
$4892 at the beginning of each year of the 4 year lease. The
equipment has an economic useful life of 6years, a fair value of
$25,000, a book value of $20,000, and both parties expect a
residual value of $8,250 at the end of the lease term, though this
amount is not guaranteed. Rauch set the lease...
On January 1, 2017, Wood Corporation leases a piece of equipment from Prior Corporation and properly...
On January 1, 2017, Wood Corporation leases a piece of equipment
from Prior Corporation and properly accounts for the equipment as a
finance lease. Under the agreement, Wood will make 7 annual
payments of $750,000 each January 1st. At the end of 7 years, Wood
has the option of buying the equipment for $200,000, when the
estimated fair value will be $400,000. If Wood's incremental
borrowing rate is 7%, what is the present value of the minimum
lease payments?
$4,574,004.64...
Bebtley Co. purchased equipment on January 1, 2017, at a cost of $45,000. Depreciation for 2017...
Bebtley Co. purchased equipment on January 1, 2017, at a cost
of $45,000. Depreciation for 2017 and 2018 was based on an
estimated eight-year life and $3,000 estimated residual value. The
company uses the straight-line method of depreciation and records
any partial-year depreciation based on the number of months the
asset is in service.
In 2019, Bentley Co. revised its depreciation estimate and now
believes the equipment will have a total service life of six years
& a residual value...
On January 1, 2020, Mays Leasing Company leases equipment to Brick Co. The lease term is...
On January 1, 2020, Mays Leasing Company leases equipment to
Brick Co. The lease term is five years, with 5 equal annual
payments of $160,000 each, beginning on 1/1/2020. The equipment has
an estimated economic life of 8 years and the fair value on
1/1/2020 is $800,000. Brick agrees to guarantee $150,000 residual
value at the end of the lease term. The expected value of the
residual value is $50,000. At the termination of the lease, the
equipment reverts to...
Bart Co. leases a common piece of equipment to Lisa Corp. The lease begins on January...
Bart Co. leases a common piece of equipment to Lisa Corp. The
lease begins on January 1, 2020, and includes the following
terms:
The lease is for 6 years and is non-cancelable.
The equipment reverts to Bart Co. at the end of the lease, with
no renewal or purchase options.
Lisa Corp. guarantees a residual value of $25,000. This is also
the expected residual value.
Bart Co. uses an implicit interest rate of 4% to set the lease
payments of...
Bart Co. leases a common piece of equipment to Lisa Corp. The lease begins on January...
Bart Co. leases a common piece of equipment to Lisa Corp. The
lease begins on January 1, 2020, and includes the following
terms:
The lease is for 6 years and is non-cancelable.
The equipment reverts to Bart Co. at the end of the lease, with
no renewal or purchase options.
Lisa Corp. guarantees a residual value of $25,000. This is also
the expected residual value.
Bart Co. uses an implicit interest rate of 4% to set the lease
payments of...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Regardless of the legal issues, do you feel it is fair for an employer to require...
- An investor believes that there will be a big jump in a stock price, but is...
- What experiences have you had with adaptation? Have you experienced culture shock and “return” culture shock?
- C language only please and please make a simple code Write a function that will find...
- Write a class DataSet that stores a number of values of type double in an array...
- Modern; The Accordionist by Pablo Picasso aritst 1How is it inspiring? 2In what way is it...
- Which of the following is not a router component? Group of answer choices RAM NVRAM Flash...
ADVERTISEMENT