Question

ABC enters into 2 leases for 2 machines. Machine 1 is leased from DEF Capital, and provides ABC a 5 year lease on January 1 good for 5 years (that machine has an expected life of 10 years , no residual) for $1,000 month. The fair market value of the machine is $100,000. This lease is non-cancellable and first payment is due 1/1/2015. ABC's incremental borrowing rate is 10%. GHI operating leases ABC machine also a non-cancellable term of 5 years (estimated useful life of machineis 5 years) with the first lease payment of $2,084 (due each month) also due on 1/1/15. Machine 2 has a FV of $100,000. The leasing cpmpanies pays all of the executor costs directly except property tax. The property tax is $2,000/year for each machine.

Prepare journal entries

Answer #1

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 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...

BBB Leasing purchased a machine for $250,000 and leased it to
Jack Tupp Auto Repair on January 1, 2018.
Lease description:
Quarterly rental payments
$16,315 at beginning of each period
Lease term
5 years (20 quarters)
No residual value; no BPO
Economic life of machine
5 years
Implicit interest rate
12%
Fair value of asset
$250,000
What is the balance in the lease payable account after the April 1,
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Peters Company leased a machine from Johnson Corporation on
January 1, 2021. The machine has a fair value of $26,000,000. The
lease agreement calls for four equal payments at the end of each
year. The useful life of the machine was expected to be four years
with no residual value. The appropriate interest rate for this
lease is 12%.
Other information:
PV of an ordinary annuity @12% for 4 periods: 3.03735
PV of an annuity due @12% for 4 periods:...

Peters Company leased a machine from Johnson Corporation on
January 1, 2021. The machine has a fair value of $29,000,000. The
lease agreement calls for four equal payments at the end of each
year. The useful life of the machine was expected to be four years
with no residual value. The appropriate interest rate for this
lease is 10%.
Other information:
PV of an ordinary annuity @10% for 4 periods: 3.16987
PV of an annuity due @10% for 4 periods:...

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...

Elf Leasing purchased a machine for $600,000 and leased it to
IGA, Inc. on January 1, 2018.
Lease description:
Quarterly rental payments
$31,101 at beginning of each period
Lease term
6 years (24 quarters)
No residual value; no BPO
Economic life of machine
6 years
Implicit interest rate and lessee’s incremental borrowing
rate
8%
Fair value of asset
$600,000
Required:
Prepare appropriate entries for both IGA and Elf Leasing from the
beginning of the lease through the second rental payment...

Peters Company leased a machine from Johnson Corporation on
January 1, 2018. The machine has a fair value of $17,000,000. The
lease agreement calls for three equal payments at the end of each
year. The useful life of the machine was expected to be three years
with no residual value. The appropriate interest rate for this
lease is 12%. Other information: PV of an ordinary annuity @12% for
3 periods: 2.40183 PV of an annuity due @12% for 3 periods:...

on January 2, 20X7, Rocky leased additional equipment. The terms
of the lease includes a non-cancelable lease term of 6 years, which
is also the estimated useful life of the equipment. The lease
agreement specifies annual payments of $100,000, beginning at the
inception of the lease and continuing each December 31 through
20X1. The appropriate interest rate is 9%. The present value factor
for an annuity due for 6 periods at 9% is 4.88965. Also on December
31, 20X7, Rocky...

On January 1, 2018, Nguyen Electronics leased equipment from
Nevels Leasing for a four-year period ending December 31, 2018, at
which time possession of the leased asset will revert back to
Nevels. The equipment cost Nevels $824,368 and has an expected
economic life of five years. Nevels expects the residual value at
December 31, 2018, will be $100,000. Negotiations led to the lessee
guaranteeing a $140,000 residual value.
Equal payments under the lease are $200,000 and are due on
December...

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