Chapter 21: 19Q (page 1239)
What disclosures should be made by lessees and lessors related to future lease payments?
Future minimum rental payments should be disclosed.
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(Amortization Schedule and Journal Entries for Lessee) Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Plote Company. The following information relates to this agreement.
Instructions
(Round all numbers to the nearest cent.)
(b) Prepare all of the journal entries for the lessee for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31.
The residual value is the estimated fair value of the leased property at the end of the lease term.
(b) Of what significance is (1) an unguaranteed and (2) a guaranteed residual value in the lessor’s accounting for a direct-financing lease transaction?
Assume that IBM leased equipment that was carried at a cost of \(150,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2017, with equal rental payments of \)30,044 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $150,000. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain-purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM’s January 1, 2017, journal entries at the inception of the lease.
A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8.
Inception date | May 1, 2017 |
Annual lease payment due at the beginning of each year, beginning with May 1, 2017 | \(21,227.65 |
Bargain-purchase option price at end of lease term | \) 4,000.00 |
Lease term | 5 years |
Economic life of leased equipment | 10 years |
Lessor’s cost | \(65,000.00 |
Fair value of asset at May 1, 2017 | \)91,000.00 |
Lessor’s implicit rate | 10% |
Lessee’s incremental borrowing rate | 10% |
Instructions
(Round all numbers to the nearest cent.) Refer to the data in E21-8 and do the following for the lessor.
(a) Compute the amount of the lease receivable at the inception of the lease.
Question: (Lessee Entries and Balance Sheet Presentation, Capital Lease) On January 1, 2017, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of \(137,899 (including the executory costs of \)6,000) at the beginning of each year, starting January 1, 2017. The taxes, the insurance, and the maintenance, estimated at \(6,000 a year, are the obligations of the lessee. The leased equipment is to be capitalized at \)550,000. The asset is to be depreciated on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage’s incremental borrowing rate is 12%, and the implicit rate in the lease is 10%, which is known by Cage. Title to the equipment transfers to Cage when the lease expires. The asset has an estimated useful life of 5 years and no residual value.
Instructions
(b) Prepare the journal entry or entries that should be recorded on January 1, 2017, by Cage Company.
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