On January 1, 2020, Natty Company (lessee) entered into a 5 year lease agreement with Fiona...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
On January 1, 2020, Natty Company (lessee) entered into a 5 year lease agreement with Fiona Company (as lessor) for machinery which had a market value of $162,900. The lease expires on January 1, 2025. Payments of $38,550 are due each January 1, which includes $2,000 insurance. The first payment was made on January 1, 2020 (the beginning of lease) when the lease agreement was signed. There is a bargain purchase option of $5,500 at the end of the lease. The implicit interest rate is 10%, which was stipulated in the lease agreement set by the lessor and is known by Natty. The incremental borrowing rate is 12%. The machine will have an eight-year economic life, and is depreciated on a straight-line basis by Natty Co. Year end is August 31 and the company uses ASPE. Show all calculations where required. Instructions a) From the lessee's viewpoint, what kind of lease is the above lease agreement assuming ASPE? (3 marks) Show all the criteria. Use the PV tables provided, Excel or the calculator in calculating PV. b) Prepare a lease amortization schedule for the lease liability from January 1, 2020 to January 1, 2022. (3 marks) c) Prepare 2020 and 2021 journal entries for Natty Company, specifically on January 1, 2020, August 31, 2020, January 1, 2021 and August 31, 2021. (12 marks) d) ANSWER THIS INDEPENDENT FROM ABOVE: Calculate the Present Value of the Lease if (2 marks) (Show calculations): On January 1, 2020, Natty Company (lessee) entered into a 5 year lease agreement with Fiona Company (as lessor) for machinery. Payments of $38,550 are due each January 1 (beginning of lease), which includes $2,000 insurance. Assume there is a bargain renewal option to renew for another 2 years with significantly lower payments of $5,000 per year which includes $500 of insurance. Assume they will renew. There is a bargain purchase option of $2,000 at the end of the lease (ie at end of 7 years). The implicit interest rate is 10% which was stipulated in the lease agreement set by the lessor and is known by Natty. The incremental borrowing rate is 12%. Assume IFRS. On January 1, 2020, Natty Company (lessee) entered into a 5 year lease agreement with Fiona Company (as lessor) for machinery which had a market value of $162,900. The lease expires on January 1, 2025. Payments of $38,550 are due each January 1, which includes $2,000 insurance. The first payment was made on January 1, 2020 (the beginning of lease) when the lease agreement was signed. There is a bargain purchase option of $5,500 at the end of the lease. The implicit interest rate is 10%, which was stipulated in the lease agreement set by the lessor and is known by Natty. The incremental borrowing rate is 12%. The machine will have an eight-year economic life, and is depreciated on a straight-line basis by Natty Co. Year end is August 31 and the company uses ASPE. Show all calculations where required. Instructions a) From the lessee's viewpoint, what kind of lease is the above lease agreement assuming ASPE? (3 marks) Show all the criteria. Use the PV tables provided, Excel or the calculator in calculating PV. b) Prepare a lease amortization schedule for the lease liability from January 1, 2020 to January 1, 2022. (3 marks) c) Prepare 2020 and 2021 journal entries for Natty Company, specifically on January 1, 2020, August 31, 2020, January 1, 2021 and August 31, 2021. (12 marks) d) ANSWER THIS INDEPENDENT FROM ABOVE: Calculate the Present Value of the Lease if (2 marks) (Show calculations): On January 1, 2020, Natty Company (lessee) entered into a 5 year lease agreement with Fiona Company (as lessor) for machinery. Payments of $38,550 are due each January 1 (beginning of lease), which includes $2,000 insurance. Assume there is a bargain renewal option to renew for another 2 years with significantly lower payments of $5,000 per year which includes $500 of insurance. Assume they will renew. There is a bargain purchase option of $2,000 at the end of the lease (ie at end of 7 years). The implicit interest rate is 10% which was stipulated in the lease agreement set by the lessor and is known by Natty. The incremental borrowing rate is 12%. Assume IFRS.
Expert Answer:
Answer rating: 100% (QA)
a The lease is an operating lease from the lessees viewpoint The criteria for an operating lease are The lease term is less than the economic life of ... View the full answer
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
Students also viewed these accounting questions
-
On 30 June 2019, Aarfy Ltd entered into a 5 year finance lease for the right to use equipment. The fair value of the equipment at that inception of the lease is $1 200 000. Lease payments are made in...
-
On January 1 2020 Potter Company purchased 100 of the 1000 shares of Voldomort Company for $800. Potter has no significant influence over Voldomort On July 1, 2020, Voldomort declared and paid a $1...
-
On January 1 2020 lakes limited a private company which follows ASPE standards issued 8 year 200000$ face value 6% bonds at par (interest pay able annually on January 1?. each 1000$ bond is...
-
According to Thomson Financial, last year the majority of companies reporting profits had beaten estimates. A sample of 162 companies showed that 114 beat estimates, 29 matched estimates, and 19 fell...
-
How do executives illegally loot their companies to receive large financial benefits?
-
Under U. S. GAAP, property, plant, and equipment are reported at historical cost net of accumulated depreciation. These assets are written down to fair value when it is determined that they have been...
-
A bond with 50 detachable warrants has just been offered for sale at \($1,000.\) The bond matures in eight years and has an annual coupon of \($100.\) Each warrant gives the owner the right to...
-
The following information is available for the preparation of the government-wide financial statements for the City of Southern Springs as of April 30, 2012: Cash and cash equivalents, governmental...
-
I do not know what the difference is between net patient services revenue on a statement of operations and the accounts receivable for a balance sheet. I have calculated the following info from the...
-
Complete Alvins Music Inc.s (AMI) 2020 Form 1120, Schedule D, and Schedule G (if applicable) using the information provided below. Neither Form 4562 for depreciation nor Form 4797 for the sale of...
-
Jackson Corporation's bonds have 14 years remaining to maturity.Interest is paid annually, the bonds have a $1,000 par value, andthe coupon interest rate is 9%. The bonds have a yield to maturityof 2...
-
The radius of our Sun is 6.96x108 m, and its total power output is 3.85x1026 W. a. Assuming the Sun's surface emits as a blackbody, calculate its surface temperature. b. What is the Sun's peak...
-
How can IKEA minimize its weaknesses to protect itself from external threats ?
-
-x+3 if x < 2 #62 Consider the function G(x) = Find the value of each. If a limit does not x+1 if x 2 exist, state DNE. (Using the domain to figure out which rule to use) a) lim G(x)= x-2- b) lim...
-
Write a program that implements and uses a class called MyRectangle. Data items should include: length, width, color, and label. Define properties with appropriate accessor functions for each of the...
-
1. Roberta thinks that cycling is the best way to explore a new city. On her visit to Paris, she cycled 75 kilometers to get to her next Airbnb in the neighboring town. The town was due east of...
-
How can we focus attention on above average medical centers?Let's assume we want to direct our audience's attention to those medical centers that are above average. In what ways could you use...
-
DEPARTMENT DATA EMPLOYEE DATA EmployeeNumber FirstName Mary Rosalie Richard George Alan 3 4 5 7 8 9 855555ES 12 13 14 15 16 17 Create the database tables in SQL or ACCESS: 18 19 20 PROJECT DATA Ken...
-
The following summary transactions occurred during 2013 for Bluebonnet Bakers: Cash Received from: Customers....................$380,000 Interest on note receivable .............6,000 Principal on...
-
Air FranceKLM (AF), a French company, prepares its financial statements according to International Financial Reporting Standards. AFs annual report for the year ended March 31, 2011, which includes...
-
Ferris Company began 2013 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2013 are as follows: *Includes purchase price and...
-
In baseball analogy, who would be the auditee? a. Pitcher b. Catcher c. Manager d. Umpire e. Some other answer
-
What internal control framework is used most often in the United States? a. Auditing Standard No. 2 b. SAS No. 99 c. COBIT d. \(\operatorname{COSO}\) e. Some other framework
-
Which would not be one of the six legs on the six-legged table of financial statements? a. The IRS b. Management c. External auditors d. PCAOB e. Board of Directors
Study smarter with the SolutionInn App