ACCT 302 Connect Homework 15 Leases Assignment solutions complete answers

ACCT 302 Connect Homework 15 Leases Assignment solutions complete answers 

 

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At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a ten-year operating lease agreement. The contract calls for quarterly rent payments of $37,000 each. The office building was acquired by Lakeside at a cost of $3.2 million and was expected to have a useful life of 25 years with no residual value.

What will be the effect of the lease on LTT’s earnings for the first year (ignore taxes)? (Enter your answer as a positive amount rounded to the nearest whole dollar.)

 

At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a eleven-year operating lease agreement. The contract calls for quarterly rent payments of $41,000 each. The office building was acquired by Lakeside at a cost of $3.6 million and was expected to have a useful life of 30 years with no residual value.

What will be the effect of the lease on Lakeside’s earnings for the first year (ignore taxes)? (Enter your answer as a positive amount rounded to the nearest whole dollar.)

 

A lease agreement that qualifies as a finance lease calls for annual lease payments of $16,000 over a four-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. (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.)
 
Required:
a. Complete the amortization schedule for the first two payments.
b. If the lessee’s fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable?

 

A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over a eight-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 4%. (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.)

Required:
a. Determine the present value of the lease upon the lease's inception.
b. Create a partial amortization table through the second payment on January 1, 2017.
c. If the lessee’s fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the year ended December 31, 2016 (ignore taxes)?

 

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $127,024. (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.)
 

 
Related Information:
Lease term
2 years (8 quarterly periods)
Quarterly rental payments
$17,000 at the beginning of each period
Economic life of asset
2 years
Fair value of asset
$127,024
Implicit interest rate
8%
(Also lessee’s incremental borrowing rate)
 
 
Required:
Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2022. Edison’s fiscal year ends December 31.

 

Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2021. International Machines manufactured the equipment at a cost of $91,000. Manufacturers Southern's fiscal year ends December 31. (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.)
 

 
Related Information:
Lease term
2 years (8 quarterly periods)
Quarterly rental payments
$15,300 at the beginning of each period
Economic life of asset
2 years
Fair value of asset
$112,446
Implicit interest rate
10%
 
 
Required:
1. Show how International Machines determined the $15,300 quarterly lease payments.
2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2021, and the second lease payment on April 1, 2021.

 

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $1,900,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2021. (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.)
   

Lease Description:
 
 
 
Quarterly lease payments
$
123,990—beginning of each period
 
Lease term
 
5 years (20 quarters)
 
No residual value; no purchase option
 
 
 
Economic life of lithotripter
 
5 years
 
Implicit interest rate and lessee's incremental borrowing rate
 
12%
 
Fair value of asset
$
1,900,000
 
 

Required:
1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2021. Adjusting entries are recorded at the end of each fiscal year (December 31).
3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.6 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2021.

 

Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. Universal earns interest under these arrangements at a 11% annual rate.

Universal purchased an electronic typesetting machine on December 31, 2020, for $99,000 and then leased it to Desktop, Inc., a local publisher. The six-year operating lease term commenced January 1, 2021, and the lease contract specified annual payments of $8,900 beginning December 31, 2021, and on each December 31 through 2026. The machine’s estimated useful life is 15 years with no estimated residual value.

The publisher had the option to terminate the lease after four years. At the beginning of the lease, there was no reason to believe the lease would be terminated.

Required:
1. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of 2021.
2. At the beginning of 2022, there was a significant indication that Desktop’s economic incentive to terminate the lease had changed causing both companies to believe termination of the lease at the end of four years (three years remaining) is "reasonably certain." Prepare any appropriate entry for Universal Leasing at January 1, 2022, to reflect the change in the lease term.
3. Prepare the appropriate entry pertaining to the lease for Universal Leasing at December 31, 2022.

 

Bidwell Leasing purchased a single-engine plane for $420,000 and leased it to Red Baron Flying Club for its fair value of $685,464 on January 1, 2021. (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.)

Terms of the lease agreement and related facts were:

a.   Eight annual payments of $120,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 through 2027. Red Baron knows that Bidwell Leasing’s implicit interest rate was 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows:

 
 
Amount to be recovered (fair value)
$
685,464
 
Lease payments at the beginning of each of the next eight years: ($685,464 ÷ 5.7122*)
$
120,000
 
 
* Present value of an annuity due of $1: n = 8, i = 11%
 

b.   Red Baron’s incremental borrowing rate is 12%.

c.   Incremental costs of consummating the completed lease transaction incurred by Bidwell Leasing were $18,746.


Required:
1. How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)?
2. Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021.
3. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club.
4. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease payment). Both companies use straight-line depreciation.
5. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment).