Question

In: Accounting

On January 1, 2018, Moorecraft Finance Company agreed to lease a piece of machinery to War...

On January 1, 2018, Moorecraft Finance Company agreed to lease a piece of machinery to War Constructions Products, Inc. Moorecraft paid $1,493, 183 to acquire the machine from the manufacturerer and carries it at this amount in its financial statements. The fair value (current selling price) of the machine is $1,493,183. The relevant lease terms follow.

- Annual rental payments of $263,516 are due on December 31 of each year. THese payments do not include any other lease components such as insurance or property taxes.

- The lease term is 6 years.

- There is no pruchase option

- The lessor expects to recover the guaranteed residual value of $280,000 at the termination of the lease.

- The economic life of the asset is 7 years.

- The lessor's implicit rate is known to Ward Construction.

- The lessor has no material uncertainties regarding future costs to be incurred under the lease, and collectibility of lease payments is reasonably assured.

- Ward depreciates similar machinery that it owns using the straight line method. The fiscal year ends on December 31 for both companies.

REQUIRED:

a) Determine the lessor's implicit rate of return from the lease.

b) Determine the lease classification for the lessee. Support your answer with clear explanation.

c) Prepare the amortization table of the lessee for the first three years of the lease term (Date, Interest, Carrying amount of)

d) Prepare the lessee's journal entries required for the asset and lease liability for the first 2 years of thelease term ( Date, Account titles and descriptions, Debit, Credit)

Solutions

Expert Solution


Related Solutions

On January 1, 2018, Moorecraft Finance Company agreed to lease a piece of machinery to War...
On January 1, 2018, Moorecraft Finance Company agreed to lease a piece of machinery to War Constructions Products, Inc. Moorecraft paid $1,493, 183 to acquire the machine from the manufacturerer and carries it at this amount in its financial statements. The fair value (current selling price) of the machine is $1,493,183. The relevant lease terms follow. - Annual rental payments of $263,516 are due on December 31 of each year. THese payments do not include any other lease components such...
On January 1, 2018, the lease commencement date, Curran Manufacturing Corporation (CMC) agreed to lease a...
On January 1, 2018, the lease commencement date, Curran Manufacturing Corporation (CMC) agreed to lease a piece of nonspecialized, heavy equipment to Oates Products, Inc. CMC paid $900,000 to manufacture the machine and carries it at this amount in its inventory. The fair value (current selling price) of the machine is $995,000. The relevant lease terms follow.   -Annual rental payments of $240,000 are due on January 1 of each year, with the first payment made at the commencenment of thelease....
Nestle Company agrees to lease machinery to Skittles on January 1, 2018. The following information relates...
Nestle Company agrees to lease machinery to Skittles on January 1, 2018. The following information relates to the lease agreement. Assume a December 31 Year-End. 1. The term of the lease is 6 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $400,000 and the fair value of the asset on January 1, 2018, is $600,000. 3. At the end of the lease term, Nestle expects...
Huffy Co., a lessee, records a finance lease of machinery on January 1, 2020. The five...
Huffy Co., a lessee, records a finance lease of machinery on January 1, 2020. The five annual lease payments of $525,000 are made at the beginning of each year. The present value of the lease payments at 10% is $2,189,180. Huffy uses straight-line depreciation with no salvage value.     Prepare an amortization table for the life of the lease. Round all amounts to the nearest dollar. Amortization Table Lease Liability Lease payment Interest Principal 2020 2021 2022 2023 2024 b. Prepare...
Question 21 Wildhorse Co. as lessee records a finance lease of machinery on January 1, 2021....
Question 21 Wildhorse Co. as lessee records a finance lease of machinery on January 1, 2021. The seven annual lease payments of $750,000 are made at the end of each year. The present value of the lease payments at 10% is $3,651,000. Wildhorse uses the effective-interest method of amortization and sum-of-the-years'-digits depreciation (no residual value). Prepare an amortization table for 20121 and 2022. Wildhorse Co. Lease Amortization Schedule Date Annual Lease Receipt/Payment Interest on Receivable/Liability Reduction in Receivable/Liability Lease Receivable/Liability...
On January 1, 2020, the company signed on a lease contract which qualifies as finance lease....
On January 1, 2020, the company signed on a lease contract which qualifies as finance lease. It calls for annual payments of $52,538 at 1/1/2020 for the first payments, and 12/31 of each year thereafter over a six-year lease term. The present value of total lease payment is $280,000 under 5% annual interest rate. Make journal entries for each of following dates, including any interest or amortization expenses. January 1, 2020, signs the lease contract and makes the first payment...
Blossom Incorporated leases a piece of machinery to Pina Company on January 1, 2020, under the...
Blossom Incorporated leases a piece of machinery to Pina Company on January 1, 2020, under the following terms. 1. The lease is to be for 4 years with rental payments of $15,557 to be made at the beginning of each year. 2. The machinery’ has a fair value of $81,480, a book value of $60,800, and an economic life of 10 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value...
Sunland Incorporated leases a piece of machinery to Culver Company on January 1, 2020, under the...
Sunland Incorporated leases a piece of machinery to Culver Company on January 1, 2020, under the following terms. 1. The lease is to be for 4 years with rental payments of $14,999 to be made at the beginning of each year. 2. The machinery’ has a fair value of $78,692, a book value of $58,720, and an economic life of 10 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value...
Crane Incorporated leases a piece of machinery to Blue Company on January 1, 2020, under the...
Crane Incorporated leases a piece of machinery to Blue Company on January 1, 2020, under the following terms. 1. The lease is to be for 4 years with rental payments of $13,046 to be made at the beginning of each year. 2. The machinery’ has a fair value of $68,934, a book value of $51,440, and an economic life of 10 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value...
Sunland Incorporated leases a piece of machinery to Culver Company on January 1, 2020, under the...
Sunland Incorporated leases a piece of machinery to Culver Company on January 1, 2020, under the following terms. 1. The lease is to be for 4 years with rental payments of $12,488 to be made at the beginning of each year. 2. The machinery’ has a fair value of $66,146, a book value of $49,360, and an economic life of 10 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT