Vaughn Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $56,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Vaughn's incremental borrowing rate is 8%. Vaughn is unaware of the rate being used by the lessor. At the end of the lease, Vaughn has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Vaughn uses the straight-line method of depreciation on similar owned equipment. Prepare the journal entries, that Vaughn should record on December 31, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places e.g. 58,971.) Date Account Titles and Explanation December 31, 2022 (To record annual amortization on leased assets.) Debit ||| Credit

Vaughn Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $56,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Vaughn's incremental borrowing rate is 8%. Vaughn is unaware of the rate being used by the lessor. At the end of the lease, Vaughn has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Vaughn uses the straight-line method of depreciation on similar owned equipment. Prepare the journal entries, that Vaughn should record on December 31, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places e.g. 58,971.) Date Account Titles and Explanation December 31, 2022 (To record annual amortization on leased assets.) Debit ||| Credit

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 12P: Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease...

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Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Whispering Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $54,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Whispering’s incremental borrowing rate is 8%. Whispering is unaware of the rate being used by the lessor. At the end of the lease, Whispering has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Whispering uses the straight-line method of depreciation on similar owned equipment.
Waterway Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $46,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Waterway's incremental borrowing rate is 9%. Waterway is unaware of the rate being used by the lessor. At the end of the lease, Waterway has the option to buy the equipment for $5.000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Waterway uses the straight-line method of depreciation on similar owned equipment Prepare the journal entries, that Waterway should record on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manualy. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round present value factor…
Blossom Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $41,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Blossom's incremental borrowing rate is 6%. Blossom is unaware of the rate being used by the lessor. At the end of the lease, Blossom has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Blossom uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Prepare the journal entries, that Blossom should record on December 31, 2025. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.…
Bridgeport Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $46,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Bridgeport’s incremental borrowing rate is 9%. Bridgeport is unaware of the rate being used by the lessor. At the end of the lease, Bridgeport has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Bridgeport uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Collapse question part(a)Prepare the journal entries, that Bridgeport should record on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the…
Pearl Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $51,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Pearl's incremental borrowing rate is 6%. Pearl is unaware of the rate being used by the lessor. At the end of the lease, Pearl has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Pearl uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Your answer is partially correct. Prepare the journal entries, that Pearl should record on December 31, 2025. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0…
Riverbed Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $53,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Riverbed’s incremental borrowing rate is 9%. Riverbed is unaware of the rate being used by the lessor. At the end of the lease, Riverbed has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Riverbed uses the straight-line method of depreciation on similar owned equipment. A)Prepare the journal entries, that Riverbed should record on December 31, 2020.
Blue Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $57,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Blue’s incremental borrowing rate is 9%. Blue is unaware of the rate being used by the lessor. At the end of the lease, Blue has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Blue uses the straight-line method of depreciation on similar owned equipment.Click here to view factor tables. (a) Prepare the journal entries, that Blue should record on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.…
Oriole Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $45,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Oriole’s incremental borrowing rate is 9%. Oriole is unaware of the rate being used by the lessor. At the end of the lease, Oriole has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Oriole uses the straight-line method of depreciation on similar owned equipment.