Part 3: Lessee Entries: Capital Lease On January 1, 2018, Southern, Inc. signed a 10-year non-cancelable...

Part 3: Lessee Entries: Capital Lease

On January 1, 2018, Southern, Inc. signed a 10-year non-cancelable lease for a machine. The terms of the lease called for Southern to make annual payments of $17,240 at the beginning of each year, starting January 1, 2018. The machine has an estimated useful life of 12 years.

The machine reverts back to the lessor at the end of the lease term. Southern uses the straight-line method of depreciation for all of its plant assets. Southern’s incremental borrowing rate is 4%, and the Lessor’s implicit rate is unknown.

Identify and explain the type of lease. Use the blank area in the template following the journal entries to make your notes.
Compute the present value of the minimum lease payments.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Part 3: Lessee Entries: Capital Lease On January 1, 2018, Southern, Inc. signed a 10-year non-cancelable...

Part 3: Lessee Entries: Capital Lease On January 1, 2018, Southern, Inc. signed a 10-year non-cancelable lease for a machine. The terms of the lease called for Southern to make annual payments of $17,240 at the beginning of each year, starting January 1, 2018. The machine has an estimated useful life of 12 years. The machine reverts back to the lessor at the end of the lease term. Southern uses the straight-line method of depreciation for all of its plant...

Part 3: Lessee Entries: Capital Lease On January 1, 2015, Southern, Inc. signed a 10-year non-cancelable...

Part 3: Lessee Entries: Capital Lease On January 1, 2015, Southern, Inc. signed a 10-year non-cancelable lease for a machine. The terms of the lease called for Southern to make annual payments of $17,336 at the beginning of each year, starting January 1, 2015. The machine has an estimated useful life of 12 years. The machine reverts back to the lessor at the end of the lease term. Southern uses the straight-line method of depreciation for all of its plant...

A lessor has signed a non-cancelable 5-year lease of a warehouse with a lessee: • The...

A lessor has signed a non-cancelable 5-year lease of a warehouse with a lessee: • The lessor believes that the lessee will make all 5 of the beginning-of-the-year rentals of $62,018 each, i.e., the lessor believes collection of the rentals is probable. • The structure has an estimated useful life of 40 years, and at the end of the lease, it will be returned to the lessor, who plans to maintain it for storage of idled machinery. • The warehouse...

On January 2, 2020, Micheal (lessee) entered into a 10-year non-cancelable lease with Thomas (lessor) for...

On January 2, 2020, Micheal (lessee) entered into a 10-year non-cancelable lease with Thomas (lessor) for equipment. The following facts relate to the transaction: -The equipment has an estimated useful life of 13 years. -There is no purchase option. Transfer of ownership to Michael is not stipulated in the lease contract. -The fair value to Thomas (lessor) at the inception of the lease was $4,000,000. Lessor's cost was $3,775,000. Sales commissions were $2,500. -Michael's incremental borrowing rate is 10%. The...

On January 2, 2020, Michael (lessee) entered into a 10-year non-cancelable lease with Thomas (lessor) for...

On January 2, 2020, Michael (lessee) entered into a 10-year non-cancelable lease with Thomas (lessor) for equipment. Required Information: The equipment has an estimated useful life of 13 years. There is no purchase option. Transfer of ownership to Michael is not stipulated in the lease contract. The fair value to Thomas (lessor) at the inception of the lease was $4,000,000. Lessor's cost was $3,775,000. Sales commissions were $2,500. Michael's incremental borrowing rate is 10%. The implicit annual rate in the...

Part 4: Lessee-Lessor Entries: Sales-Type Lease On January 1, 2018, Capital Corp. leased equipment to Hinton...

Part 4: Lessee-Lessor Entries: Sales-Type Lease On January 1, 2018, Capital Corp. leased equipment to Hinton Corporation. The following information pertains to this lease. The term of the noncancelable lease is 12 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. Equal rental payments are due on January 1 of each year, beginning in 2018. The fair value of the equipment on January 1, 2018, is $247,500, and its cost is $198,000....

On January 1,2020. The leasing co. (The lessor) signed a 5-year, non cancelable lease with Dexter...

On January 1,2020. The leasing co. (The lessor) signed a 5-year, non cancelable lease with Dexter Inc.(the lessee). The terms of the lease are: (a) Lease payments of $62,700 are made on January 1 of each year. (b) the annual lease payments include $12,700 of property taxes. (c)the present value of the annual minimum lease payments is equal to the fair market value of the building at the inception of the lease. (d) the building has an estimated life of...

On January 1, Plugs Company, a lessee, entered into three non-cancelable leases for new equipment, Lease...

On January 1, Plugs Company, a lessee, entered into three non-cancelable leases for new equipment, Lease L, Lease M, and Lease N. None of the three leases transfers ownership of the equipment to Plugs at the end of the lease term. For each of the three leases, the present value at the beginning of the lease term of the lease payments is 75% of the fair value of the equipment. The following information is specific to each lease. · Lease...

Assume that on December 31, 2018, SYT signs a 10-year, non-cancelable lease agreement to lease a...

Assume that on December 31, 2018, SYT signs a 10-year, non-cancelable lease agreement to lease a storage building from a Lessor. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of €71,830 beginning on December 31, 2018. 2. The fair value of the building on December 31, 2018, is €525,176. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of €10,000, and an expected residual value of €7,000....

On January 1, Year 1, a lessee signed a five-year equipment lease with annual payments of...

On January 1, Year 1, a lessee signed a five-year equipment lease with annual payments of $100,000 beginning December 31, Year 1. The lessee treated this transaction as a capital lease. The five lease payments have a present value of $379,000 at January 1, Year 1, based on interest of 10%. What amount should the lessee report as interest expense for the year ended December 31, Year 1?

Subjects