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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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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.
(c) Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2017, 2018, and 2019. The lessor’s accounting period ends on December 31. Reversing entries are not used by Mooney.
Lessor Computations and Entries, Sales-Type Lease with Guaranteed Residual Value) Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is \(411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be \)15,000. The hospital will pay rents of \(60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of \)250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.
Instructions
(b) Prepare a 10-year lease amortization schedule.
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: (Balance Sheet and Income Statement Disclosure—Lessee) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.
Inception date | October 1, 2017 |
Lease term | 6 years |
Economic life of leased equipment | 6 years |
Fair value of asset at October 1, 2017 | \(300,383 |
Residual value at end of lease term | –0– |
Lessor’s implicit rate | 10% |
Lessee’s incremental borrowing rate | 10% |
Annual lease payment due at the beginning of each year, beginning with October 1, 2017 | \)62,700 |
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to \(5,500 per year and are to be paid each October 1, beginning October 1, 2017. (This \)5,500 is not included in the rental payment of \(62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.
The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor.
Date | Annual lease payments/Receipt | Interest (10%) On Unpaid liability/Receivable | Reduction of Lease Liability? Receivable | Balance of Lease Liability/Receivable |
10/01/17 | \)300,383 | |||
10/01/17 | \(62,700 | \)62,700 | 237,683 | |
10/01/18 | \(62,700 | \)23,768 | 38,932 | 198,751 |
10/01/19 | \(62,700 | 19,875 | 42,825 | 155,926 |
10/01/20 | \)62,700 | 15,593 | 47,107 | 108,819 |
10/01/21 | \(62,700 | 10,882 | 51,818 | 57,001 |
10/01/22 | \)62,700 | 5,699* | 57,001 | 0 |
\(376,200 | \)75,817 | \(300,383 |
*Rounding error is \)1.
Instructions
(a) Assuming the lessee’s accounting period ends on September 30, answer the following questions with respect to this lease agreement.
(b) What items and amounts will appear on the lessee’s income statement for the year ending September 30, 2018?
Use the information for Rick Kleckner Corporation from BE21-3. Assume that at December 31, 2017, Kleckner made an adjusting entry to accrue interest expense of \(29,530 on the lease. Prepare Kleckner’s January 1, 2018, journal entry to record the second lease payment of \)53,920.
Rick Kleckner Corporation recorded a capital lease at \(300,000 on January 1, 2017. The interest rate is 12%. Kleckner Corporation made the first lease payment of \)53,920 on January 1, 2017. The lease requires eight annual payments. The equipment has a useful life of 8 years with no salvage value. Prepare Kleckner Corporation’s December 31, 2017, adjusting entries.
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