Question

In: Accounting

Question 2 chapter 15 Handout Assignment

Millet Sales Corp., a public company, is planning to acquire new computers with a total value of $ 60,000 on January 1, 2021. They have a choice of leasing the computers for a three-year period, or purchasing them and financing the purchase by issuing a note payable. Details of the two alternative arrangements are as follows: 

1. Lease option: Three annual lease payments of $ 22,446 due on December 31 of each year. Millet would purchase the computers at the end of the three years for $ 2.00. 

2. Financing option: Millet would make a down payment of $ 10,000 and issue a 6%, 3-year note payable for the remaining balance, with annual blended payments of $ 18,705 required on December 31 of each year. 

Instructions 

a) Is the lease arrangement an operating or finance lease? Explain your choice. Record any entry required on January 1, 2021. 

b) Prepare the amortization table for the note payable. Record any entry required on January 1, 2021.

Solutions

Expert Solution

(a)

ParticularsOperating LeaseFinancial Lease
Risk & RewardsA lease in which all the risks and rewards related to asset ownership remain with the lessor for the leased asset is called an operating lease. In this type of lease, the asset is returned by the lessee after using it for the agreed-upon lease term.In a financial lease, the risks and rewards related to asset ownership are transferred to the lessee. In this type of lease, the asset is not returned by the lessee after using it for the agreed-upon lease term
OwnershipThe ownership of the asset remains with the lessor for the entire lease period.The ownership transfer option is available at the end of the lease period to the lessee. The title may or may not be transferred eventually.

In the above case, the Millet would purchase the asset at the end of 3 years which means the risk and rewards of the asset will be transferred to the lessee, which means it is a financial lease.

Journal Entry:-

1 January 2021    Finance Liability A/c       Dr.      $22,446

                                       To Cash A/c    $22,446

                             (Being first annual payment made).

(b)

Amortization Table:-

Year

Opening Balance($)

(A)

Interest($)

(B)

Installment($)

(C)

Closing Balance($)

(D)=(A+B-C)

060000-1000050000
150000

50000*6%

3000

1870534295
234295

34295*6%

=2057.70

1870517647.70
317647.70

17647.70*6%

=1058.862

18705

0

Differences of points arise due to round off

    Annual Blended Payments of $18705 include the interest as well as the principal amount.



Related Solutions

Assignment 2 ACCT101 Assignment Question(s):                                   &
Assignment 2 ACCT101 Assignment Question(s):                                                       Q1- A company wants to implement good internal control. What are the policies and procedures you can suggest to minimize human frauds and errors? (1Mark) Q2- Assume that you have a company. And the management team estimates that 3% of sales will be uncollectible. Give any amount of sales and prepare the journal entry using the percent of sales method. (1Mark) Q3- A company that uses a perpetual inventory system made the following cash purchases...
Chapter 2 Exercise is divided in to 2 sections A and B. Data for this assignment...
Chapter 2 Exercise is divided in to 2 sections A and B. Data for this assignment is under Data files in module Ex2-30-e8.xls (for A) and Ex2-34-e8.xls (for B). See data under modules. A) The following data give the weekly amounts spent on groceries for a sample of households. $271 $363 $159 $ 76 $227 $337 $295 $319 $250 279 205 279 266 199 177 162 232 303 192 181 321 309 246 278 50 41 335 116 100 151...
The question is from the textbook Inequality, Discrimination, Poverty, and Mobility Question 4, Chapter 15: "Is...
The question is from the textbook Inequality, Discrimination, Poverty, and Mobility Question 4, Chapter 15: "Is there a healthy degree of intergenerational mobility in the United States or is the degree of intergenerational mobility distressingly low?"
Chapter 8 Assignment                                       &
Chapter 8 Assignment                                                     2-22-2018 1. Solve the following problem: Suppose GDP is $9 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed (GDP=C+I+G), calculate consumption, government purchases, national savings, and investment. [Hint: See pages 165-166 in your textbook.] Show your work so that we can explain what went wrong if you miss any aspect of this. 2. Mankiw explains the role the federal government budgetary outcome (surplus or...
Chapter 15 Discussion Group Question                                Gender differences in dream content
Chapter 15 Discussion Group Question                                Gender differences in dream content are well documented (see Winget & Kramer, 1979). Suppose a researcher studies aggression content in the dreams of men and women. Each participant reports his or her most recent dreams. Then each dream is judged by a panel of experts to have low, medium, or high aggression content. The observed frequencies are shown in the following matrix:    Aggression Content Low medium high female 18 4 2 male 4...
The question is from the textbook Inequality, Discrimination, Poverty, and Mobility Question 3, Chapter 15: "Explain...
The question is from the textbook Inequality, Discrimination, Poverty, and Mobility Question 3, Chapter 15: "Explain how your actions influence your children's lifetime earnings. How confident should you be that your children will live better than you?"
Assignment4: Firewall Allow/Block Conflicts Using the information presented in chapter 7, the provided handout (Firewall Limitations),...
Assignment4: Firewall Allow/Block Conflicts Using the information presented in chapter 7, the provided handout (Firewall Limitations), and the lessons learned from Lab4 to answer the following questions: Discuss types of conflicts that may arise between firewall port ranges and individual port allow/block settings? What are the different types of conflict that you identified from this discussion?
Assignment 2 is on page 146, question 12. The assignment asks you to write a program...
Assignment 2 is on page 146, question 12. The assignment asks you to write a program to allow a user to enter a temperature in Celsius and convert it to Fahrenheit. Then display the new temperature on the screen. Consider using the fixed, showpoint, and setprecision stream manipulators with your output. (hint, probably points to what sort of numeric variables you should use) The formula to convert from C to F is in the book on page 146. For extra...
Auditing - Chapter Seven This assignment consists of one question with two parts listed below. Answer...
Auditing - Chapter Seven This assignment consists of one question with two parts listed below. Answer the questions and submit to the drop box on the assigned date. Your paper should be double-spaced and at minimum two pages long. You may use any format for the answer, however, when appropriate, the Conclusion, Rule, Application, Conclusion format is preferable for clarity and better understanding. Question Importance of materiality judgments Explain how auditors determine planning materiality and performance materiality. What happens if...
develop a patient information handout on childhood vaccinations. This handout should include relevant information on the...
develop a patient information handout on childhood vaccinations. This handout should include relevant information on the common vaccinations administered to children—along with the timeline of when each immunization is usually administered and the purpose it serves. Your handout should also highlight the benefits of these immunizations and provide a resource that can help address any questions or concerns. Your information handout should be a minimum of 250 words
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT