Question

Red Co. recorded a right-of-use asset of $145,000 in a 10-year finance lease. Payments of $23,598...

Red Co. recorded a right-of-use asset of $145,000 in a 10-year finance lease. Payments of $23,598 are made annually at the end of each year. The interest rate charged by the lessor was 10%. The balance in the lease payable after two years will be: (Round your final answer to nearest whole dollar.)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
The lessee should recognize the lease as an asset and a liability at the inception of financial lease
Recognition should be at an amount equal to Fair value of leased asset at inception of lease or present value of minimum lease payments whichever is lower
Present value of lease payments 145009.71 (Annual payment * PVF (10%,10yrs)
Fair value' 145000
Calculation of finance charges
Year Finance charge Payment Reduction in outstanding liability Outstanding liability
1st year beginning 145000
End of 1st year 14500 23598 9098 135902
End of 2nd year 13590 23598 10008 125894
Balance in lease payable after 2 years 125894
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
1.Red Co. recorded a right-of-use asset of $180,000 in a 10-year finance lease. Payments of $29,294...
1.Red Co. recorded a right-of-use asset of $180,000 in a 10-year finance lease. Payments of $29,294 are made annually at the end of each year. The interest rate charged by the lessor was 10%. The balance in the lease payable after two years will be: (Round your final answer to nearest whole dollar.) 2.On January 1, 2018, Packard Corporation leased equipment to Hewlitt Company. The lease term is 11 years. The first payment of $453,000 was made on January 1,...
Data Warehouse Corporation recorded a right-of-use asset for $210,000 as a result of a finance lease...
Data Warehouse Corporation recorded a right-of-use asset for $210,000 as a result of a finance lease on December 31, 2016. Data Warehouse’s incremental borrowing rate is 8%, and the implicit rate of the lessor was not known at the commencement of the lease. Data Warehouse Corporation made the first lease payment of $48,700 on December 31, 2016. The lease requires 5 annual payments. The equipment has a useful life of 5 years with no residual value. Prepare Data Warehouse Corporation’s...
On 1/1/16, black co. (lessee) recorded a right of use asset of $100,000 for a 10-year...
On 1/1/16, black co. (lessee) recorded a right of use asset of $100,000 for a 10-year lease agreement. payments of $12,575 are made annually at the beginning of each rental year, with the first payment paid on 1/1/16. the lessor’s implicit rate is 5.5%, which approximates Black’s incremental borrowing rate. Black classifies the lease as a finance lease, but not as a result of a bargain purchase option or title transfer. the leased equipment has an estimated useful life of...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the end of each year. The lessee is aware of the lessor’s implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation 1 2 3 Lease term (years) 10 15 5 Lessor's rate of return (known by lessee) 12% 10%...
Exercise 15-10 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-2]...
Exercise 15-10 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-2] Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the end of each year. The lessee is aware of the lessor’s implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation 1 2...
15. On February 1, 2019, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $970,000. PWI...
15. On February 1, 2019, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $970,000. PWI retired all of these bonds on January 1, 2020, at 98. Unamortized bond discount on that date was $15,000. How much gain or loss should be recognized on this bond retirement? a. 10,000 loss b. 10,000 gain c. 5,000 loss d. 5,000 gain 19. Blue Co. recorded a right-of-use asset of $400,000 in a 8-year finance lease. Payments of $72,270 are made annually at...
Watson Co. entered into a lease arrangement for a truck on 1 April 2012 that had...
Watson Co. entered into a lease arrangement for a truck on 1 April 2012 that had the following terms: The lease payments are $13,500 per year, payable each 1 April for four years. The lease may be renewed at the option of the lessor for a further five years for $3,900 per year. Based on an allocation of the lease payment on relative stand-alone prices, the lease and non-lease components (maintenance) are $12,200 and $1,300 respectively. Expected amounts to be...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation 1 2 3 Lease term (years) 11 21 5 Lessor's rate of return (known by lessee) 10% 8%...
Each of the independent situations below describes a finance lease in which annual lease payments are...
Each of the independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit interest rate. Situation 1 2 Lease term 10 yrs 20 yrs Lessor's desired rate of return 12 % 14 % Lessee's incremental borrowing rate 14 % 12 % Fair value of asset $ 710,000 $ 510,000 For convenience, here are some table values: Periods; int. rate PV, ordinary annuity...
Lessee leased a machine from Lessor under a 10-year, noncancelable lease. The transaction was properly classified...
Lessee leased a machine from Lessor under a 10-year, noncancelable lease. The transaction was properly classified as a finance lease, and a right-of-use asset and a lease liability of $100,000 were recorded. The $14,900 annual payments made at the end of each lease period were discounted at 8% implicit interest to derive the initial $100,000 amounts. Lessee should record the following interest expense at the end of Years 1 and 2: Please show solution Year 1 Year 2 A. $8,000...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT