Question

New lease standards become effective January 1, 2019. These standards affect the accounting for operationg leases....

New lease standards become effective January 1, 2019. These standards affect the accounting for operationg leases. Assume Swift Company acquires a machine with a fairvalue of $100,000 on January 1 of Year 1 by signing a five year lease. Swift must make payments of $16,275 each December 31. The appropriate interest rate on the lease is 10%. Assume that this lease meets the criteria for an operating lease. Compute the following amounts under (a) the lease standard effective before January 1, 2019 and (b) the new lease standards (an amortization table will be useful in solvoing this problem. a. The leased asset at December 31 of each of the first 3 years. b. The lease liability at December 31 of each of the first 3 years. c. Rent expense for each of the first 3 years. d. Interest expense for each of the first 3 years. e. Depreciation expense for each of the first three years.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Fair value of asset to be recorded in books of lessee-

=$16275*present value of annuity factor for 3 years at 10 % rate

=$16275*2.4869(1/1.1+1/(1.1)2+1/(1.1)3)

=$ 40474

depreciation for each year for three years- $13491 ($ 40474/3)

balance of asset at end of first year- $ 40474- $ 13491 = $ 26983

balance of asset at end of second year- $ 26983- $13491 = $ 13492

balance of asset at end of third year- $13492- $13492 = $ 0

interest expense of first year = $40474*10/100 =$ 4047

interest expense of second year= $28246*10/100 = $ 2825

interest expense of third year=$ 14796*10/100 = $ 1479

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Franklin, Inc. leased equipment from Juniper Co. on December 31, 2018. The lease meets the criteria...
Franklin, Inc. leased equipment from Juniper Co. on December 31, 2018. The lease meets the criteria of a finance lease under the new lease accounting standard. The lease requires annual payments of $150,000 due on December 31 of each year, beginning December 31, 2018. The present value of the lease payments is $1,020,000. The interest rate implicit in the lease is 8%. Of the payment due on December 31, 2019, how much will Franklin record as interest expense? (Round to...
Pina Corporation leases equipment from Falls Company on January 1, 2017. The lease agreement does not...
Pina Corporation leases equipment from Falls Company on January 1, 2017. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. Prepare Pina’s journal entries on January 1, 2017, and December 31, 2017. Assume the annual lease payment is $37,000 at the...
ACCOUNTING FOR LEASES Mickey’s Garage entered into a non-cancellable, five-year lease agreement on 1 April 2020...
ACCOUNTING FOR LEASES Mickey’s Garage entered into a non-cancellable, five-year lease agreement on 1 April 2020 for an item of machinery. The machinery is expected to have an economic life of seven years, after which it will have no salvage or residual value and ownership is transferred at the end of the lease. Mickey’s Garage is to make five annual payments of $100,000 (to be made at the end of the year). The rate of interest implicit in the lease...
On January 1, 2018, Winn Heat Transfer leased office space under a three year operating lease...
On January 1, 2018, Winn Heat Transfer leased office space under a three year operating lease agreement. The arrangement specified three annual rent payments of $60,000 each, beginning December 31, 2018, and at each December 31 through 2020. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 5%. Winn also paid a $276,000 advance payment at the beginning of the lease in addition to the first $60,000 rent payment. With permission of the owner, Winn...
On January 1, 2015, Bill Inc. leases equipment from Smart Class Inc. for six years requiring...
On January 1, 2015, Bill Inc. leases equipment from Smart Class Inc. for six years requiring an annual payment of $40,000 on December 31 of each year. The first payment was made on December 31, 2015. Bill's incremental borrowing rate is 8 percent and uses straight-line method of depreciation. Which of the following statements is true? A.) If it's an operating lease, Bill will report an initial lease liability equal to the present value of the entire lease payments. B.)...
On January 1, 2021, Packard Corporation leased equipment to Hewlitt Company. The lease term is 12...
On January 1, 2021, Packard Corporation leased equipment to Hewlitt Company. The lease term is 12 years. The first payment of $453,000 was made on January 1, 2021. Remaining payments are made on December 31 each year, beginning with December 31, 2021. The equipment cost Packard Corporation $3,361,310. The present value of the lease payments is $3,395,263. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, what will be the balance...
On January 1, 2018, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease....
On January 1, 2018, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic. Portions of the Equipment Leasing’s lease amortization schedule appear below: Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance 246,579 2018 22,500 0 22,500 224,079 2018 22,500 16,806 5,694 218,385 2019 22,500 16,379 6,121 212,264 2020 22,500...
On January 1, 2019, Concord Corp. signs a contract to lease nonspecialized manufacturing equipment from Stone...
On January 1, 2019, Concord Corp. signs a contract to lease nonspecialized manufacturing equipment from Stone Inc. Concord agrees to make lease payments of $47,500 per year. Additional information pertaining to the lease is as follows: 1. The term of the noncancelable lease is 3 years. Payments are due every January 1, beginning January 1, 2019. 2. The fair value of the manufacturing equipment on January 1, 2019, is $155,000. The equipment has an economic life of 7 years. 3....
On January 1 of year 1, Falk Company signed a contract to lease space in a...
On January 1 of year 1, Falk Company signed a contract to lease space in a building for 3 years. The lease contract calls for annual (prepaid) rental payments of $100,000 on each January 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. Present value of the three lease payments is $270,000. Assume the lease is accounted for as an operating lease. Prepare entries for Falk to...
On January 1, Year One, Company A leases a truck from Ford for its entire life...
On January 1, Year One, Company A leases a truck from Ford for its entire life of 5 years, for an annual payment of $20,000 to be paid on December 31 of each year. The first payment was made on December 31, Year One. A reasonable interest rate is determined to be 10 percent per year. Determine the amount of lease liability reported by Company A on its December 31, Year One balance sheet. Group of answer choices $62,700 $64,700...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT