Homework Answers
Part a-1
Yes this agreement should be considered as a capital lease.
Criteria for a capital lease
- Present value equals or exceeds 90 percent of the fair value
- The lease term is atleast 75 percent of the estimated useful life of the asset life.
Both the criteria are fully satisfied as can be seen in part a-2 calculations, this lease must be recorded as a capital lease.
Part a-2
Part b
Part c
The capital asset and long term liability would be reflected only on the government wide statement of net position
Add Answer to:
rate of 5 percent, the present the lease at the date of inception. (If no entry...
Lease inception date 12/31/01 First Payment Date 12/31/01 Payments in Advance? YES Fair Value $730,120 Lease...
Lease inception date 12/31/01 First Payment Date 12/31/01 Payments in Advance? YES Fair Value $730,120 Lease Term (yrs) 4 Useful Life 5 Estimated Residual Value $20,000 Incremental Rate 10% Implicit Rate 8% Implicit Rate Known? No Lease Payment $200,000 Guar. Res. Val.? $20,000 Transfer? No Bargain purchase option? No 12/31/FY02 Lease liability 200,000 Cash 200,000 FY03 Interest expense calculation: $28,532 = [715,420 – (3×200,000) + ### ] × ###
The City of Clear Lake signed a lease agreement with Mountainside Builders whereby Mountainside will construct...
The City of Clear Lake signed a lease agreement with Mountainside Builders whereby Mountainside will construct a new office building for city administrative use and lease it to the City for 30 years. The fair market value of the building is $12 million. The City has agreed to make an initial payment of $822,441 and annual payments in the same amount for the next 29 years. (This assumes a 6 percent discount rate.) The lease includes a funding clause, which...
the present date is november 5 Several years ago Brant, Inc., sold $950,000 in bonds to...
the
present date is november 5
Several years ago Brant, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent The bond...
On January 1, Harbor (lessee) signs a five-year lease for equipment that is accounted for as...
On January 1, Harbor (lessee) signs a five-year lease for equipment that is accounted for as a finance lease. The lease requires five $21,000 lease payments (the first at the beginning of the lease and the remaining four at December 31 of years 1, 2, 3, and 4), and the present value of the five annual lease payments is $90,555, based on an 8% interest rate. 1. Prepare the January 1 journal entry Harbor records at inception of the lease...
need help on a-c2 McCormick County agreed to acquire a new recreation equipment storage facility under...
need help on a-c2
McCormick County agreed to acquire a new recreation equipment storage facility under a lease financing agreement. At the inception of the lease, a payment of $750,000 will be made; four additional annual lease payments, each in the amount of $750,000, are to be made at the end of each year, beginning late in the current year. The total amount to be paid under this lease is $3,750,000. The lease arrangements implied an annual interest rate of...
Culver Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected...
Culver Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $170,000. The terms of the lease are as follows: • The lease term begins on January 1, 2019, and runs for 5 years. • The lease requires payments of $37,396 at the beginning of each year starting January 1, 2019. • At the end of the lease term,...
Terms of a lease agreement and related facts were: a. The lease asset had a retail...
Terms of a lease agreement and related facts were: a. The lease asset had a retail cash selling price of $135,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $27,693, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 9%. d. Costs of $3,262 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate...
Cullumber Company is evaluating a lease arrangement being offered by TSP Company for use of a...
Cullumber Company is evaluating a lease arrangement being offered by TSP Company for use of a computer system. The lease is noncancelable, and in no case does Cullumber receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2017, with the first rental payment due on January 1, 2017. Additional information related to the lease is as follows. Yearly rental $3,710.00 Lease term 3 years Estimated economic life 5 years...
The following facts pertain to a noncancelable lease agreement between Groh Leasing Company and MS Cody Company, a calendar year lessee. January 1, 2013 S37,000 Inception date: Annual lease-paym...
The following facts pertain to a noncancelable lease agreement between Groh Leasing Company and MS Cody Company, a calendar year lessee. January 1, 2013 S37,000 Inception date: Annual lease-payment due at the beginning of each year, beginning with January 1,2013 including $2000.00 of executory costs Lease term Economie life of leased equipment Bargain purchase option Fair value of asset at January 1, 2013 Lessor's implicit rate (known to lessee) Lessee's incremental borrowing rate 4 years 5 years $5,000 $125,455 10%...
The following facts pertain to a noncancelable lease agreement between Pharoah Leasing Company and Novak Company,...
The following facts pertain to a noncancelable lease agreement
between Pharoah Leasing Company and Novak Company, a
lessee.
Inception date:
May 1, 2017
Annual lease payment due at
the beginning of
each year,
beginning with May 1, 2017
$18,727.72
Bargain-purchase option price
at end of lease term
$4,000
Lease term
5
years
Economic life of leased
equipment
10
years
Lessor’s cost
$62,000
Fair value of asset at May 1,
2017
$82,000
Lessor’s implicit rate
9
%
Lessee’s incremental
borrowing rate...
the
present date is november 5
Several years ago Brant, Inc., sold $950,000 in bonds to the public. Annual cash interest of 8 percent ($76,000) was to be paid on this debt. The bonds were issued at a discount to yield 12 percent. At the beginning of 2016, Zack Corporation (a wholly owned subsidiary of Brant) purchased $190,000 of these bonds on the open market for $211,000, a price based on an effective interest rate of 6 percent The bond...
On January 1, Harbor (lessee) signs a five-year lease for equipment that is accounted for as a finance lease. The lease requires five $21,000 lease payments (the first at the beginning of the lease and the remaining four at December 31 of years 1, 2, 3, and 4), and the present value of the five annual lease payments is $90,555, based on an 8% interest rate. 1. Prepare the January 1 journal entry Harbor records at inception of the lease...
need help on a-c2
McCormick County agreed to acquire a new recreation equipment storage facility under a lease financing agreement. At the inception of the lease, a payment of $750,000 will be made; four additional annual lease payments, each in the amount of $750,000, are to be made at the end of each year, beginning late in the current year. The total amount to be paid under this lease is $3,750,000. The lease arrangements implied an annual interest rate of...
Culver Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $170,000. The terms of the lease are as follows: • The lease term begins on January 1, 2019, and runs for 5 years. • The lease requires payments of $37,396 at the beginning of each year starting January 1, 2019. • At the end of the lease term,...
Terms of a lease agreement and related facts were: a. The lease asset had a retail cash selling price of $135,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $27,693, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 9%. d. Costs of $3,262 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate...
The following facts pertain to a noncancelable lease agreement between Groh Leasing Company and MS Cody Company, a calendar year lessee. January 1, 2013 S37,000 Inception date: Annual lease-payment due at the beginning of each year, beginning with January 1,2013 including $2000.00 of executory costs Lease term Economie life of leased equipment Bargain purchase option Fair value of asset at January 1, 2013 Lessor's implicit rate (known to lessee) Lessee's incremental borrowing rate 4 years 5 years $5,000 $125,455 10%...
The following facts pertain to a noncancelable lease agreement
between Pharoah Leasing Company and Novak Company, a
lessee.
Inception date:
May 1, 2017
Annual lease payment due at
the beginning of
each year,
beginning with May 1, 2017
$18,727.72
Bargain-purchase option price
at end of lease term
$4,000
Lease term
5
years
Economic life of leased
equipment
10
years
Lessor’s cost
$62,000
Fair value of asset at May 1,
2017
$82,000
Lessor’s implicit rate
9
%
Lessee’s incremental
borrowing rate...
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