Jay Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment. The following data are relevant to the lease agreement.
- The term of the noncancellable lease is three years, with no renewal option. Payments of $12,000 are due on January 1, of each year.
- The fair value of the equipment on January 1, 2020 is $35,000. The equipment has an estimated economic life of five years, and an unguarenteed residual value of $4,000.
- The equipment reverts back to the lessor at the termination of the lease and is expected to have use to the lessor.
- The lessee is aware that the lessor used an implicit rate of 6%.
(Present Value & Future Value Tables are provided on pages 3 and 4)
Instructions:
1. Indicate the type of lease Jay has entered into and why (include a list of the Capital Lease Criteria)
(Present Value & Future Value Tables are provided on pages 3 and 4)
2. Prepare the journal entries on Jay’s books related to the lease agreement for the following dates: (round all amounts to the nearest dollar. Include a partial amortization schedule)
a. January 1, 2020
b. December 31, 2020
c. January 1, 2021

Blue Corp.’s income statement for the year ended December 31, 2020, had the following condensed information: Service revenue $775,500 Operating expenses (excluding depreciation) $491,000 Depreciation expense 66,000 Unrealized loss on FV-NI investments 5,000 Loss on sale of equipment 12,500 574,500 Income before income taxes 201,000 Income tax expense 50,000 Net income $151,000 There were no purchases or sales of trading (FV-NI) investments during 2020. Blue’s statement of financial position included the following comparative data at December 31: 2020 2019 FV-NI investments $21,800 $26,800 Accounts receivable 34,800 54,400 Accounts payable 45,500 31,900 Income tax payable 7,000 9,100 . Prepare the operating activities section of the statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000). Assume that Blue Corp.’s current cash debt coverage ratio in 2019 was 4.5. Calculate the company’s current cash debt coverage ratio in 2020. (Round answer to 1 decimal places, e.g. 7.5.)

1. The adjusted entry was done as of December 30th, 2020. As a result, prepaid rent account was decreased and correct rent expense was recorded. The mentioned entry had the following effect on the Balance Sheet equation

A. Decrease in Assets, Decrease in Equity

B. Decrease in Assets, Decrease in Liability

C. Decrease in Assets, Increase in Equity

D. No change in Assets, Equity and Liabilities

2. On December 31, 2020, FunAccounting Company's Accounts Receivable balance was $10,000 and the balance in the Allowance for Doubtful Accounts was $3,000 and Bad debt expense for 2020 was 1,000. What was net realizable value of accounts receivable as of December 31, 2020

A. 7,000

B. 9,000

C. 10,000

D. 6,000

3. An aging of a company's accounts receivable indicates that $11,000 is estimated to be uncollectible. If the Allowance for Doubt Accounts has a $3,500 balance already, the adjustment to record bad (uncollectible) debts for period will require a(n):

A. Increase to Bad Debt Expense for $7,500

B. Decrease in Bad Debt Expense for $7,500

C. Increase to Allowance for Doubtful Accounts for $11,000

D. Increase to Bad Debt Expense for $11,000

E. Decrease in Allowance for Doubtful Accounts for $7,500

Vaughn Company began operations late in 2019 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $13,869 under both the conventional retail method and the LIFO retail method. At the end of 2020, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2020. The following data are available for computations.

Compute the cost of the 2020 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

On October 1, 2020, Mertag Company (a U.S.-based company) receives an order from a customer in Poland to deliver goods on January 31, 2021, for a price of 1,028,000 Polish zlotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,028,000 in four months (on January 31, 2021). U.S. dollar–Polish zloty exchange rates are as follows:

Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured by referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored.

1. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment, and export sale.
2. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.

Skysong Company began operations late in 2019 and adopted the conventional retail inventory method. Because there was no beginning inventory for 2019 and no markdowns during 2019, the ending inventory for 2019 was $13,708 under both the conventional retail method and the LIFO retail method. At the end of 2020, management wants to compare the results of applying the conventional and LIFO retail methods. There was no change in the price level during 2020. The following data are available for computations.

Compute the cost of the 2020 ending inventory under both:

(a) The conventional retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answer to 0 decimal places, e.g. 28,987.)

(b) The LIFO retail method. (Round ratios for computational purposes to 0 decimal places, e.g. 78% and final answers to 0 decimal places, e.g. 28,987.)

Wingfoot Co. began operations on July 1, 2019. By the end of its first fiscal year, ended June 30, 2020, Wingfoot had sold 10,000 wingers. Selected data on operations for the year ended June 30, 2020, follow. (Any balance sheet figures are as at June 30, 2020.)

Additional information:

• 1.Each winger requires 2 kg of direct materials, 0.5 machine hours, and one direct labour hour.

• 2.Except for machinery depreciation of $5,000 and a $1,000 miscellaneous fixed cost, all manufacturing overhead is variable.

• 3.Except for $4,000 in advertising expenses, all selling and administrative expenses are variable.

• 4.The tax rate is 40%.

Instructions

Assume that the company uses variable costing and prepare a contribution-method income statement in good form for the year ended June 30, 2020.

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Crane Company. The following information relates to this agreement.

1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.

2. The fair value of the asset at January 1, 2020, is $70,000.

3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, none of which is guaranteed.

4. The agreement requires equal annual rental payments of $21,827.58 to the lessor, beginning on January 1, 2020.

5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee.

6. Crane uses the straight-line depreciation method for all equipment.

Click here to view factor tables. Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided

Lo 9-7, 9-8

37. On October 1, 2020, Mertag Company ( a U.S.-based comany) receives an order from a customer in Poland to deliver goods on January 31,2021, for a price of 1,000,000 Polish zotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,000,000 in four months ( on January 31, 2021). U.S. dollar-Polis zioty exchange rates are follows:

October 1, 2020 $0.25 $0.29

December 31, 2020 0.28 0.31

January 31, 2021 0.30 N/A

Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured b referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored.

a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment and export sale.

b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.