On December 31, 2023, the City of Oliver leases a large piece of construction equipment with a 25-year life for five years to use during a construction project. After the contract ends, the city must return the equipment to the lessor but has not guaranteed any residual value. The lease requires five annual payments of $40,000 per year beginning immediately. Oliver uses its own incremental borrowing rate of 10 percent per year because it does not know the implicit interest rate the lessor is charging. The present value of a $40,000 annuity due for five years at an annual interest rate of 10 percent is $166,795. Prepare the journal entries required for government-wide financial statements for this lease contract for 2023 and 2024. Note: Round your answers to the nearest whole number.
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- On January 1, 2021, the lessee company signs a 10-year, non-cancelable lease agreement to lease a building from the lessor company. The agreement requires equal rental payments of $115,000 beginning on January 1, 2021. The building has a guaranteed residual value of $17,000, and an expected residual value of $3,000. The lessee's incremental borrowing rate is 10% per year. However, the lessee knows that the lessor’s implicit interest rate is 12%. What is the present value of lease payments? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 10 periods 2.59 0.39 15.94 6.14 6.76 12%, 10 periods 3.11 0.32 17.55 5.65 6.33On December 31, 2020, the City of Oliver leases a large piece of construction equipment with a 25-year life for five years to use during a construction project. After the contract ends, the city must return the equipment to the lessor but has not guaranteed any residual value. The lease requires five annual payments of $40,000 per year beginning immediately. Oliver uses its own incremental borrowing rate of 10 percent per year because it does not know the implicit interest rate the lessor is charging. The present value of a $40,000 annuity due for five years at an annual interest rate of 10 percent is $166,795 (rounded). Prepare the journal entry/entries required for government-wide financial statements for this lease contract for 2020 and 2021.On March 31, 2020, Ahlam Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Ahlam to make annual payments of $10,485 starting April 1, 2021. The machine has an estimated useful life of 6 years. Ahlam uses the straight-line method of depreciation for all of its plant assets. Ahlam’s incremental borrowing rate is 8%. The lessee is aware that the lessor used an implicit rate of 10% in computing the lease payments (present value factor for 5 periods at 8%, 3.993; at 10%, 3.791). Instructions What type of lease is this? Explain. Compute the present value of the minimum lease payments. c. Prepare all necessary journal entries for Ahlam for this lease through December 31, 2021. (Round all amounts to the nearest dollar. Include a partial amortization schedule.)
- On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. • The expected useful life of the asset is nine years, and its fair value is $75,000. ● Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." The relevant interest rate at that time was 6%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of…Belardo Manufacturing is considering a lease to acquire new equipment. The useful life of the asset is 10 years. Belardo can lease the equipment from Weber City Bank for $5,000 per year over an 9-year period. The lease does not contain a purchase option. There is no transfer of ownership clause in the contract. Should Belardo account for this lease as an operating or a finance lease? Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Begin by identifying any of the Group I criteria that Belardo meets. (Select all that apply. If there is insufficient information to determine if a specific criteria is met, do not check the box for that criteria.) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3.…On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $19,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. The expected useful life of the asset is nine years, and its fair value is $142,500. Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." The relevant interest rate at that time was 5%. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. EVA of $1, PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of the…
- On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $30,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. The expected useful life of the asset is nine years, and its fair value is $225,000. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." • The relevant interest rate at that time was 5%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of…The government lent $200,000 to Sweet Industries, who signed a 5-year, zero-interest note dated January 1, 2021 to help finance the construction of a building. The market rate of interest is 4% and the effective interest method of amortization is used. The loan will be forgiven if Sweet provides employment for a specified number of individuals for a specified period of time. If these conditions are not met, the amount is due to the government in full in five years. Sweet believes it will be able to meet the conditions.On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $23,000 due on December 31 of each year, calculated by the lessor using a 7% discount rate. • The expected useful life of the asset is nine years, and its fair value is $172,500. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." • The relevant interest rate at that time was 8%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of…
- On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $17,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. • The expected useful life of the asset is nine years, and its fair value is $127,500. Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." .The relevant interest rate at that time was 5%. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1, EVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of…On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $23,000 due on December 31 of each year, calculated by the lessor using a 7% discount rate. • The expected useful life of the asset is nine years, and its fair value is $172,500. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." • The relevant interest rate at that time was 8%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of…At the beginning of 2021, Killion Co. leased furniture to GameStop under a seven-year operating lease agreement. The lease requires quarterly payments of $30,000 each. The furniture was acquired by Killion at a cost of $2.5 million and was expected to have a useful life of 25 years with no residual value. How will GameStop's net income be impacted by this lease? (ignore taxes)? (Enter your answer in whole dollars.).