Homework Answers
According to Ijaraj FAS-8, if legal title of leased asset transfers to lessee as a result of Ijarah agreement, it is called financial lease( Ijarah Muntahia Bitamleek) . Otherwise, it is called operating lease.
In the given case, in all of the questions 1,2 & 3, the contract does not state transfer of ownership, hence, as per FAS-8, all of these are operating lease asset.
Tutorial Note:
However as per IAS-17, additional conditions determine lease as financial given below among many:
- The term lease is for majority part of economic life of asset (Generally 75%)
- PV of minimum lease payments amounts to at least substantially all of fair value of leased asset. (90%)
Testing above criteria in the questions, we get
- Financial Lease as term lease is 75% of economic life
- Financial lease as term lease is 80% of economic life
- Operating lease as none of above and other conditions of financial lease is satisfied.
Add Answer to:
Question 1 Identify whether each of the following contracts is an operating or a financing jarah...
Question 9 (-110 On January 1, Year 1, Lessee entered into a 4-year lease that does...
Question 9 (-110 On January 1, Year 1, Lessee entered into a 4-year lease that does not transfer ownership or contain a purchase option. The economic life of the leased asset, which has an alternative use, is 6 years. Also, the present value of the lease payments is 75% of the fair value of the leased asset. If no initial direct costs are incurred, what is the lessee's appropriate accounting? (1) Amortize the right-of-use asset on a straight line basis...
PharoahInc. leased a new crane to Flounder Construction under a 5-year, non-cancelable contract starting January 1,...
PharoahInc. leased a new crane to Flounder Construction under a
5-year, non-cancelable contract starting January 1, 2020. Terms of
the lease require payments of $48,500 each January 1, starting
January 1, 2020. The crane has an estimated life of 7 years, a fair
value of $240,000, and a cost to Pharoah of $240,000. The estimated
fair value of the crane is expected to be $35,000 (unguaranteed) at
the end of the lease term. No bargain purchase or renewal options
are...
E21-19 (LO3,4) (Accounting for an Operating Lease) Kaluzniak Corporation leased equipment to Moeller, Inc. on January...
E21-19 (LO3,4) (Accounting for an Operating Lease) Kaluzniak Corporation leased equipment to Moeller, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,137 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $7,000, a book value of $5,000, and Kaluzniak expects a residual value of $4,500 at the end of the lease term. Kaluzniak set the lease payments with the...
Marin Corporation leases a building to Cullumber, Inc. on January 1, 2020. The following facts pertain...
Marin Corporation leases a building to Cullumber, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 10 years with equal annual rental payments of $3,469 at the end of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $34,400, a book value to...
On January 1, 2017, Sheffield Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2017, Sheffield Company contracts to lease
equipment for 5 years, agreeing to make a payment of $109,913 at
the beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $466,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Sheffield’s
incremental borrowing rate is 6%, and the implicit rate in the
lease is 9%, which is known by Sheffield....
Norway Corporation leases equipment from Nova Scotia Company on January 1, 2017. The lease agreement does...
Norway Corporation leases equipment from Nova Scotia Company on January 1, 2017. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 4 years of the equipment’s 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased.Prepare Norway’s journal entries on January 1, 2017, and December 31, 2017. Assume the annual lease payment is $25,000 at the...
help On January 1, James Industries leased equipment to a customer for a four-year period, at...
help
On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $720,000 and has an expected useful life of six years. Its normal sales price is $720,000. The residual value after four years is $120,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest...
Question 5 ClevelandInc. leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting...
Question 5 ClevelandInc. leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2020. Terms of the lease require payments of $48,555 each January 1, starting January 1, 2020. The crane has an estimated life of 7 years, a fair value of $240,000, and a cost to Cleveland of $240,000. The estimated fair value of the crane is expected to be $45,000 (unguaranteed) at the end of the ease term. No bargain purchase or renewal...
On January 1, James Industries leased equipment to a customer for a four-year period, at which...
On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $720,000 and has an expected useful life of six years. Its normal sales price is $720,000. The residual value after four years is $120,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate...
On January 1, 2017, Sheffield Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2017, Sheffield Company contracts to lease
equipment for 5 years, agreeing to make a payment of $109,913 at
the beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $466,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Sheffield’s
incremental borrowing rate is 6%, and the implicit rate in the
lease is 9%, which is known by Sheffield....
Question 9 (-110 On January 1, Year 1, Lessee entered into a 4-year lease that does not transfer ownership or contain a purchase option. The economic life of the leased asset, which has an alternative use, is 6 years. Also, the present value of the lease payments is 75% of the fair value of the leased asset. If no initial direct costs are incurred, what is the lessee's appropriate accounting? (1) Amortize the right-of-use asset on a straight line basis...
PharoahInc. leased a new crane to Flounder Construction under a
5-year, non-cancelable contract starting January 1, 2020. Terms of
the lease require payments of $48,500 each January 1, starting
January 1, 2020. The crane has an estimated life of 7 years, a fair
value of $240,000, and a cost to Pharoah of $240,000. The estimated
fair value of the crane is expected to be $35,000 (unguaranteed) at
the end of the lease term. No bargain purchase or renewal options
are...
E21-19 (LO3,4) (Accounting for an Operating Lease) Kaluzniak Corporation leased equipment to Moeller, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,137 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $7,000, a book value of $5,000, and Kaluzniak expects a residual value of $4,500 at the end of the lease term. Kaluzniak set the lease payments with the...
On January 1, 2017, Sheffield Company contracts to lease
equipment for 5 years, agreeing to make a payment of $109,913 at
the beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $466,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Sheffield’s
incremental borrowing rate is 6%, and the implicit rate in the
lease is 9%, which is known by Sheffield....
help
On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $720,000 and has an expected useful life of six years. Its normal sales price is $720,000. The residual value after four years is $120,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest...
Question 5 ClevelandInc. leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2020. Terms of the lease require payments of $48,555 each January 1, starting January 1, 2020. The crane has an estimated life of 7 years, a fair value of $240,000, and a cost to Cleveland of $240,000. The estimated fair value of the crane is expected to be $45,000 (unguaranteed) at the end of the ease term. No bargain purchase or renewal...
On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $720,000 and has an expected useful life of six years. Its normal sales price is $720,000. The residual value after four years is $120,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate...
On January 1, 2017, Sheffield Company contracts to lease
equipment for 5 years, agreeing to make a payment of $109,913 at
the beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $466,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Sheffield’s
incremental borrowing rate is 6%, and the implicit rate in the
lease is 9%, which is known by Sheffield....
Most questions answered within 3 hours.
-
You are a member of an alpine rescue team and must get a box of
supplies,...
asked 1 minute ago -
Where the conservation of biodiversity is concerned, can I be
assisted with these questions:
1. What...
asked 2 minutes ago -
A 79-Ω loudspeaker, a 8.0-Ω loudspeaker, and a 3.7-Ω loudspeaker
are connected in parallel across the...
asked 33 minutes ago -
If X has a normal distribution with mean µ =
12 and variance σ2 = 9,...
asked 41 minutes ago -
An example of an operational taxonomic unit
(OTU) is
a. Multiple sequence alignment.
b. Protein sequence....
asked 43 minutes ago -
Electrons flow through a 2.7-mm-diameter aluminum wire at
2.5×10−4 m/s .
How many electrons move through...
asked 43 minutes ago -
For a recent year, McDonald’s (MCD)
company-owned restaurants had the following sales and expenses (in
millions):...
asked 42 minutes ago -
In a sample of 15 men, the mean height was 171 cm. In a sample
of...
asked 43 minutes ago -
In this exercise, we will be refactoring a working program. Code
refactoring is a process to...
asked 2 hours ago -
3
researchers at Cambrige looked at 5,000 firms in Englans and found
that, in terms of...
asked 2 hours ago -
why it is important and how it integrates within ERP? And what
the core challenges of...
asked 4 hours ago -
A strawberry farmer determines that the average weight of
individual strawberries produced by plants in his...
asked 4 hours ago