On January 1, 2023, Carla Vista Inc. sold a piece of equipment to Sunland Ltd. For $182,000, and immediately leased the equipment back. At the time, the equipment was carried on Carla Vista's books at a cost of $273,000, less accumulated depreciation of $109,000. The lease is a capital lease to Carla Vista, with a lease term of 5 years. The equipment under capital lease will be depreciated in Carla Vista's books over five years using double-declining balance depreciation. Calculate the amortization of the deferred gain on sale to be recorded at the end of 2023, if Carla Vista follows ASPE.
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- Sandhill Company leases a building to Teal Mountain, Inc. on January 1, 2025. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $3,539 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $17,800, a book value to Sandhill of $10,800, and a useful life of 6 years. At the end of the lease term, Sandhill and Teal Mountain expect there to be an unguaranteed residual value of $3,730. 4. 5. Sandhill wants to earn a return of 8% on the lease, and collectibility of the payments is probable. Teal Mountain was unaware of the implicit rate used in the lease by Sandhill and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Sandhill (lessor) and Teal Mountain (lessee) classify this lease? Sandhill would classify the lease as a Teal Mountain…Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $569,000, and the fair value of the asset on January 1, 2025, is $682,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock estimates that the expected residual value at the end of the lease term will be $55,000. Shamrock amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Ivanhoe desires a 9% rate of return on its investments. Shamrock's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on…Pina Leasing Company agrees to lease equipment to Grouper Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $475,000, and the fair value of the asset on January 1, 2025, is $681,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Grouper estimates that the expected residual value at the end of the lease term will be $50,000. Grouper amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Pina desires a 9% rate of return on its investments. Grouper's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December…
- On January 1, 2022, Dire Corporation signed a ten-year noncancelable lease for certain machinery. The terms of the lease called for Dire to make annual payments of P150,000 at the end of each year for ten years with title to pass to Dire at the end of this period. The machinery has an estimated useful life of 15 years. Dire uses the straight-line method of depreciation for all of its fixed assets. Dire accordingly accounted for this lease transaction as a finance lease. The interest rate of 8% is implicit in the lease. Dire has an option to purchase the asset at the end of lease term at P120,000 which is reasonably certain to exercise by Dire. Estimated residual value at the end of 10 years is P100,000 and end of 15 years is P80,000. Dire incurred a total of P350,000 direct cost to enter the lease. Dire should record for 2022: ANSWER: interest expense of P84,968 and depreciation expense of P88,806. Show full solutionABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? A.P 500,000 B.P 477,826 C.P 559,610 D.P 460,000Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year. The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value. Vaughn depreciates similar machinery it owns on the straight-line basis. The lessee pays all executory costs. Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate. Vaughn has a December 31 year-end. Required: Indicate the type of lease that Vaughn Company has entered into and why. Prepare an amortization table for Vaughn in Excel. Prepare the journal entries on Vaughn’s books for the first two years of the lease.
- ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? P 500,000 P 477,826 P 559,610 P 460,000ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return?Angelo Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P2,300,000. On January 1, 2020, Angelo Company leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual payment are due each January 1 and the first payment was made on January 1, 2020. The residual value of the machine is P200,000. The lease terms are arranged so that a return of 12% is earned by Angelo Company. What is the annual lease payment payable in advance required to yield the desired return?
- On January 1, 2018, Naw Corporation leased a piece of machinery from Hoffherr Machinery's. The lease is a(n) 10 year, non-cancellable lease that requires lease payments of $5,000 due at the beginning of each year. The lease has been determined to be a capital lease because at least one of the classification criteria has been met. Naw Corporation needs to determine the present value of the lease payments so that they can record the asset and the liability at lease inception. Hoffherr Machinery's implicit rate of 10% is known to Naw Corporation. Complete the following from the perspective of Naw Corporation. Which of the following financial statement items is impacted in this transaction? The problem is solving for: The calculation involves: Excel® Formula Variables = Total asset asset = asset PV To record the inception of the lease cash PV 33795 Accounts To record the first lease payment ( Rate ( .1 Date of Delivery Debit 33795 5000 Leases Obligation Present Value An Annuity Due Nper 10…ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11 What is the annual lease payment payable in advance required to yield the desired return? A. P 500,000 B. P 477,826 C. P 559,610 D. P 460,000On January 1, 2020, Firm ABC (lessor) leased a building to Firm XYZ (lessee). The relevant information related to the lease is as follows. 1) The lease arrangement is for 3 years. 2) The building's cost and fair value at commencement of the lease $60,000. The building is depreciated on a straight-line basis. Its estimated economic life is 5 years with salvage value of $12,000 at the end of the lease. The residual value after 5 years is assumed to be zero. 3) The lease contains no renewal options. The building reverts to Firm ABC at the termination of the lease. 4) The implicit rate of Firm ABC (the lessor) is 6% and is known by Firm XYZ. 5) Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Firm XYZ should make in 2020 Dates 1/1/2020, 1/1/2020, 1/1/2021, 1/1/2022 Please include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability (b) Prepare the journal entries that Firm ABC should make in 2020