Question

On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease...

On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement:
1. The term of the non-cancellable lease is three years with no renewal option. Payments of
$271,622 are due on December 31 of each year.
2. The fair value of the machine on January 1, 2017, is $700,000. The machine has a
remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
3. Marlene depreciates all its machinery on a straight-line basis.
4. Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8%
implicit rate used by Dietrich.
5. Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful.
Assume the present value of the lease payments is $700,000 at January 1, 2017.

If Marlene accounts for this lease as a finance lease, what is the amount of the reduction in the lease obligation in calendar 2018? (Round to the nearest dollar.)
a) $201,622
b) $215,622
c) $221,784
d) $232,873

Homework Answers

Answer #1
Year Interest @ 10% Lease payment Principal repayment Balance
2017 $      700,000
2017 $      70,000 $      271,622 $      201,622 $      498,378
2018 $      49,838 $      271,622 $      221,784 $      276,594
2019 $      27,659 $      271,622 $      243,963 $         32,631

Hence, option C is correct.

For any clarification, please comment. Kindly Up Vote!

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sandhill Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the...
Sandhill Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $498572 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1400000. The machine has a remaining economic life...
Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2013 for the...
Alt Corporation enters into an agreement with Yates Rentals Co. on January 1, 2013 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a)          The term of the noncancelable lease is 3 years with no renewal option. Payments of $310,426 are due on December 31 of each year. (b)          The fair value of the machine on January 1, 2013, is $800,000. The machine has a remaining economic life...
Wildhorse Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the...
Wildhorse Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $730052 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $2050000. The machine has a remaining economic life...
Teal Mountain Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole...
Teal Mountain Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreemenent 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $421,000. The fair value of the asset at January 1, 2017, is $421,000. 3. The asset will revert to the lessor at...
January 1, 2018, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building...
January 1, 2018, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $6,200,000; however, the book value to Holt...
Lucas, Inc. enters into a lease agreement as lessor on January 1, 2018, to lease an...
Lucas, Inc. enters into a lease agreement as lessor on January 1, 2018, to lease an airplane to National Airlines. The term of the noncancelable lease is eight years and payments are required at the beginning of each year. The following information relates to this agreement: 1. National Airlines has the option to purchase the airplane for $16,000,000 when the lease expires at which time the fair value is expected to be $27,000,000. 2. The airplane has a cost of...
On January 1, 2021, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage...
On January 1, 2021, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2021 is $5600000; however, the book...
Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Skysong Company....
Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Skysong 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, 2017, is $56,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset...
Windsor Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company....
Windsor Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $451,000. The fair value of the asset at January 1, 2020, is $451,000. 3. The asset will revert to the lessor at the...
. Eubank Company, as the lessee, enters into a lease agreement on January 1, 2020, for...
. Eubank Company, as the lessee, enters into a lease agreement on January 1, 2020, for equipment. The following data are relevant to the lease agreement: 1.   The term of the noncancelable lease is 4 years. Payments of $978,446 are due on January 1 of each year. 2.   The fair value of the equipment on January 1, 2020 is $3,6000,000. The equipment has an economic life of 6 years with no salvage value. 3.   Eubank depreciates similar machinery it owns...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT