On July 1, 2020, Shroff Company leased a warehouse building under a 10-year lease agreement. The...
On July 1, 2020, Shroff Company leased a warehouse building under a 10-year lease agreement. The lease requires quarterly lease payments of $6,000. The first lease payment is due on September 30, 2020. The lease was reported as a finance lease using an 8% annual interest rate.
a. Prepare the journal entry to record the commencement of the
lease on July 1, 2020.
b. Prepare the journal entries that would be necessary on September
30 and December 31, 2020.
c. Post the entries from parts a and b in their appropriate
T-accounts.
d. Prepare a financial statement effects template to show the
effects template to show the effects of the entries from parts a
and b on the balance sheet and income statement.
Note: Round answers to the nearest dollar. Use rounded answers for subsequent computations.
- Journal entries
- T-accounts
- Financial statement effects template
Note:Use negative sign with your answers, when appropriate.
| Balance Sheet | Income Statement | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Transactions | Cash Asset | Noncash Assets |
Contra Assets |
Liabilities | Contributed Capitals |
Earned Capital |
Revenues | Expenses | Net Income |
| 7/1: Finance lease commences. | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer |
| 9/30: Amortization on leased asset. | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer |
| 9/30: Made quarterly lease payment. | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer |
| 12/31: Amortization on leased asset. | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer |
| 12/31: Made quarterly lease payment. | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer | Answer |
Homework Answers
| a. | Journal entries; | |||||||||||
| Date | General journal | Debit | Credit | |||||||||
| July 1,2020 | Leased building | 164133 | ||||||||||
| lease payable | 164133 | |||||||||||
| (lease recorded) | ||||||||||||
| Present value of lease payments; | ||||||||||||
| Lease paid quarterly | ||||||||||||
| Discount factor=Interest per quarter=8%*(3/12)=2% | ||||||||||||
| Total quarterly lease payments=10*4=40 periods | ||||||||||||
| Present value of lease payments=6000*Present value at 2% for 40 years=6000*27.35548=$ 164133 | ||||||||||||
| b. | Date | General journal | Debit | Credit | ||||||||
| Sep 30. | Depreciation expense | (164133/10)*(3/12) | 4103 | |||||||||
| Accumulated depreciation | 4103 | |||||||||||
| (Depreciation recorded for 3 months) | ||||||||||||
| Sep 30. | Interest expense | (164133*8%*3/12) | 3283 | |||||||||
| Lease payable | (6000-3283) | 2717 | ||||||||||
| Cash | 6000 | |||||||||||
| (Lease payment made) | ||||||||||||
| Dec 31. | Depreciation expense | (164133/10)*(3/12) | 4103 | |||||||||
| Accumulated depreciation | 4103 | |||||||||||
| (Depreciation recorded for 3 months) | ||||||||||||
| Dec 31. | Interest expense | (164133-2717)*8%*3/12 | 3228 | |||||||||
| Lease payable | (6000-3228) | 2772 | ||||||||||
| Cash | 6000 | |||||||||||
| (Lease payment made) | ||||||||||||
| c. | Leased building | Lease payable | ||||||||||
| Date | Debit | Date | Credit | Date | Debit | Date | Credit | |||||
| Jul 1. | 164133 | Sep 30. | 2717 | Jul 1. | 164133 | |||||||
| Dec 31. | 2772 | |||||||||||
| 5489 | 164133 | |||||||||||
| Bal. | 158644 | |||||||||||
| Accumulated depreciation | Interest expense | |||||||||||
| Date | Debit | Date | Credit | Date | Debit | Date | Credit | |||||
| Sep 30. | 4103 | Sep 30. | 3283 | |||||||||
| Dec 31. | 4103 | Dec 31. | 3228 | |||||||||
| 0 | 8206 | 6511 | 0 | |||||||||
| Bal. | 8206 | Bal. | 6511 | |||||||||
| Depreciation expense | ||||||||||||
| Date | Debit | Date | Credit | |||||||||
| Sep 30. | 4103 | |||||||||||
| Dec 31. | 4103 | |||||||||||
| 8206 | 0 | |||||||||||
| Bal. | 8206 | |||||||||||
| d. | Financial statement effects template | |||||||||||
| Balance sheet | Income statement | |||||||||||
| Transaction | Cash asset | Noncash asset | Contra assets | Liabilities | Contributed capitals | Earned capital | Revenues | Expenses | Net income | |||
| 7/1:Finance lease commences | 164133 | 164133 | ||||||||||
| 9/30: Amortization on leased asset | -4103 | -4103 | -4103 | -4103 | ||||||||
| 9/30: Made quarterly lease payment | -6000 | -2717 | -3283 | -3283 | -3283 | |||||||
| 12/31: Amortization on leased asset | -4103 | -4103 | -4103 | -4103 | ||||||||
| 12/31: Made quarterly lease payment | -6000 | -2772 | -3228 | -3228 | -3228 | |||||||
Add Answer to:
On July 1, 2020, Shroff Company leased a warehouse building
under a 10-year lease agreement. The...
On January 1, 2018, Winn Heat Transfer leased office space under a three-year operating lease agreement....
On January 1, 2018, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual rent payments of $102,000 each, beginning December 31, 2018, and each December 31 through 2020. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 8%. Winn also paid a $276,000 advance payment at the beginning of the lease in addition to the first $102,000 rent payment. With permission from the owner, Winn made structural...
On January 2, 2020, Petronila Company leased several machines from Petrakos Corporation under a three-year lease...
On January 2, 2020, Petronila Company leased several machines from Petrakos Corporation under a three-year lease agreement. The lease calls for semiannual payments of $15,000 each, payable on June 30 and December 31 of each year. The machines were acquired by Petrakos at a cost of $130,000 and are expected to have a useful life of 6 years with no expected residual value. Required: 1. How Petronila classify this lease? and how Petrakos’s classified it? 2. Prepare the appropriate journal...
The following facts pertain to a non-cancelable lease agreement between Tamarisk Leasing Company and Carla Vista...
The following facts pertain to a non-cancelable lease agreement between Tamarisk Leasing Company and Carla Vista Company, a lessee. May 1, 2020 Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $17,865.02 $7,000 5 years 10 years $65,000 $85,000...
The following facts pertain to a non-cancelable lease agreement between Metlock Leasing Company and Ivanhoe Company,...
The following facts pertain to a non-cancelable lease agreement between Metlock Leasing Company and Ivanhoe Company, a lessee. May 1, 2020 Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $19,656.69 $7,000 5 years 10 years $65,000 $93,000 6%...
A finance lease agreement calls for quarterly lease payments of $5,519 over a 10-year lease term,...
A finance lease agreement calls for quarterly lease payments of $5,519 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $154,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would...
A finance lease agreement calls for quarterly lease payments of $6,720 over a 10-year lease term,...
A finance lease agreement calls for quarterly lease payments of $6,720 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 12%. Both the present value of the lease payments and the cost of the asset to the lessor are $160,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would...
Commencement date May 1, 2020 Annual lease payment due at the beginning of each year, beginning...
Commencement date May 1, 2020
Annual lease payment due at the beginning of each year,
beginning with May 1, 2020 $17,225.30
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 $55,000
Fair value of asset at May 1, 2020 $77,000
Lessor’s implicit rate 8 % ; Lessee’s incremental borrowing rate
8 % ;The collectibility of the lease payments by Metlock is
probable.
Prepare the journal entries...
Werner Chemical, Inc., leased a protein analyzer on September 30, 2018. The five-year lease agreement calls...
Werner Chemical, Inc., leased a protein analyzer on September
30, 2018. The five-year lease agreement calls for Werner to make
quarterly lease payments of $414,386, payable each September 30,
December 31, March 31, June 30, with the first payment at September
30, 2018. Werner's incremental borrowing rate is 16%. Amortization
is recorded on a straightline basis at the end of each fiscal year.
The useful life of the equipment is five years. (FV of $1, PV of
$1, FVA of...
On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement....
On January 1, 2021, Winn Heat Transfer leased office space under
a three-year operating lease agreement. The arrangement specified
three annual lease payments of $102,000 each, beginning December
31, 2021, and at each December 31 through 2023. The lessor, HVAC
Leasing calculates lease payments based on an annual interest rate
of 8%. Winn also paid a $282,000 advance payment at the beginning
of the lease. With permission of the owner, Winn made structural
modifications to the building before occupying the...
On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement....
On January 1, 2021, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $93,000 each, beginning December 31, 2021, and at each December 31 through 2023. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 8%. Winn also paid a $204,000 advance payment at the beginning of the lease. With the permission of the owner, Winn made structural modifications to the building before occupying...
The following facts pertain to a non-cancelable lease agreement between Tamarisk Leasing Company and Carla Vista Company, a lessee. May 1, 2020 Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $17,865.02 $7,000 5 years 10 years $65,000 $85,000...
The following facts pertain to a non-cancelable lease agreement between Metlock Leasing Company and Ivanhoe Company, a lessee. May 1, 2020 Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $19,656.69 $7,000 5 years 10 years $65,000 $93,000 6%...
A finance lease agreement calls for quarterly lease payments of $5,519 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $154,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would...
A finance lease agreement calls for quarterly lease payments of $6,720 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 12%. Both the present value of the lease payments and the cost of the asset to the lessor are $160,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would...
Commencement date May 1, 2020
Annual lease payment due at the beginning of each year,
beginning with May 1, 2020 $17,225.30
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 $55,000
Fair value of asset at May 1, 2020 $77,000
Lessor’s implicit rate 8 % ; Lessee’s incremental borrowing rate
8 % ;The collectibility of the lease payments by Metlock is
probable.
Prepare the journal entries...
Werner Chemical, Inc., leased a protein analyzer on September
30, 2018. The five-year lease agreement calls for Werner to make
quarterly lease payments of $414,386, payable each September 30,
December 31, March 31, June 30, with the first payment at September
30, 2018. Werner's incremental borrowing rate is 16%. Amortization
is recorded on a straightline basis at the end of each fiscal year.
The useful life of the equipment is five years. (FV of $1, PV of
$1, FVA of...
On January 1, 2021, Winn Heat Transfer leased office space under
a three-year operating lease agreement. The arrangement specified
three annual lease payments of $102,000 each, beginning December
31, 2021, and at each December 31 through 2023. The lessor, HVAC
Leasing calculates lease payments based on an annual interest rate
of 8%. Winn also paid a $282,000 advance payment at the beginning
of the lease. With permission of the owner, Winn made structural
modifications to the building before occupying the...
Most questions answered within 3 hours.
-
An entomologist discovers a dung beetle rolling a ball of dung
along the ground, and decides...
asked 1 hour ago -
Humans have used horses for transportation for millions of
years. Therefore, they will use horses for...
asked 2 hours ago -
The following are the Jensen Corporation's unit costs of making
and selling an item at a...
asked 3 hours ago -
Does direct Medicare reimbursement of Advanced practice nurses
increase access to their services?
asked 4 hours ago -
List and explain why a company would choose to use a
published
compensation survey vs. creating...
asked 4 hours ago -
A discrete random variable X can take values from 1 to 10. Find
the variance of...
asked 4 hours ago -
The primary financial goal of a corporation is to maximize:
shareholders wealth.
earnings per share.
stock...
asked 4 hours ago -
determine whether the vectors u=(1,2,3,), v=(-2,1,0) and
w=(1,0,1) are linearly dependent or independent.
asked 4 hours ago -
python
Define a function called print_values which takes a dictionary
object as a parameter. The function...
asked 5 hours ago -
In Chapter 1 you created a program named Triangle in
which you displayed a seven-line triangle...
asked 5 hours ago -
Research question: What are the differences between separately
stated and non separately stated transactions in an...
asked 6 hours ago -
By using Arduino write a code that connects two LEDs to two
push-buttons. Each button controls...
asked 7 hours ago