Question

Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with...

Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Corporation to lease a machine with an economic life of 12 years to be used by Green Corporation in its operations. The fair value of the asset at the inception of the lease was $400,000; it cost Renewable Co. $360,000 and is carried as equipment at that value. Payments of $44,925 are to be made by Green Corporation at the beginning of each of the eight years of the lease. Renewable Co.’s implicit interest rate is 6% per year, which is not known by Green Corporation. Green Corporation’s incremental borrowing rate is 7%. Renewable Co. estimates the residual value of the leased asset to be $166,217 at the end of the lease term. The residual value is not guaranteed by Green Corporation. Renewable Co. will depreciate the equipment on a straight-line basis (assume no salvage value).

Required

a. How would Green Corporation classify the lease?

b. What balances (account titles, amounts) appear on Green’s balance sheet at the end of the first year, related to the lease?

c. What balances (account titles, amounts) appear on Green’s income statement for the first year, related to the lease?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer :

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
Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with...
Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Cor- poration to lease a machine with an economic life of 12 years to be used by Green Corporation in its operations. The fair value of the asset at the inception of the lease was $400,000; it cost Renewable Co. $360,000 and is carried as equipment at that value. Payments of $44,925 are to be made by Green Corporation at the beginning of...
Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with...
Renewable Co. uses leasing as a secondary means of selling its products. The company contracted with Green Corporation to lease a machine with an economic life of 12 years to be used by Green Corporation in its operations. The fair value of the asset at the inception of the lease was $400,000; it cost Renewable Co. $360,000 and is carried as equipment at that value. Payments of $44,925 are to be made by Green Corporation at the beginning of each...
(b) The information below relates to a leasing arrangement between Summer Leasing Company and Talon Company,...
(b) The information below relates to a leasing arrangement between Summer Leasing Company and Talon Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning of each year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term, guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing...
Rambler Company leased a machine from Basket Leasing Company. The lease is for 4 years. The...
Rambler Company leased a machine from Basket Leasing Company. The lease is for 4 years. The life of the asset is 5 years. The terms of the lease require 4 payments of $100,000 at the beginning of the year, beginning on January 1, 2017. The lease is non-cancelable. Rambler’s incremental borrowing rate is 8% and does not know Basket’s 6% rate of return. There is a guaranteed residual value of $15,000 at the end of year 4. At the end...
Rambler Company leased a machine from Basket Leasing Company. The lease is for 4 years. The...
Rambler Company leased a machine from Basket Leasing Company. The lease is for 4 years. The life of the asset is 4 years. The terms of the lease require 4 payments of $100,000 at the beginning of the year, beginning on January 1, 2018. The lease is non-cancelable. Rambler's incremental borrowing rate is 8% and knows Basket's 6% rate of return. There is an ungauranteed residual value of $12,000 at the end of year 4. At the end of year...
L Leasing Company agrees on Jan. 1, 2012, to rent R Co. the equipment that R...
L Leasing Company agrees on Jan. 1, 2012, to rent R Co. the equipment that R Co. requires to expand its production capacity to meet customers’ demands for its products. The lease agreement calls for five annual lease payment of $200,000 at the end of each year. R Co. has identified this as a capital lease. Furthermore, the company has determined that the present value of the lease payment discounted at 15% (the implicit interest rate) is $670,431. The leased...
Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment...
Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment at a cost of $85,000. Other information: Lease term 4 years Annual payments $30,000 on January 1 each year Life of asset 4 years Fair value of asset $105,939 Implicit interest rate 9% Incremental rate 9% There is no expected residual value. Required: Prepare appropriate journal entries for Hi-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a...
Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment...
Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment at a cost of $85,000. Other information: Lease term 4 years Annual payments $30,000 on January 1 each year Life of asset 4 years Fair value of asset $105,939 Implicit interest rate 9% Incremental rate 9% There is no expected residual value. Required: Prepare appropriate journal entries for Hi-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a...
Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment...
Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment at a cost of $87,000. Other information: Lease term 4 years Annual payments $34,000 on January 1 each year Life of asset 4 years Fair value of asset $121,621 Implicit interest rate 8% Incremental rate 8% There is no expected residual value. Required: Prepare appropriate journal entries for Hi-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a...
On January 2, 2018, Universal Co. leased a delivery truck from Blue Sky Leasing Company. Blue...
On January 2, 2018, Universal Co. leased a delivery truck from Blue Sky Leasing Company. Blue Sky paid $68,000 for the truck. Its retail value is $70,843. The lease agreement specified annual payments beginning on January 2, 2018, the beginning of the lease, and at each December 31 through 2024. Blue Sky’s interest rate for determining payments was 6%. At the end of the eight-year lease term (December 31, 2025) the truck was expected to be worth $8,000. Universal guaranteed...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT