A company entered into two different leases on Ist January 2012: Machine 1 A total of...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A company entered into two different leases on Ist January 2012: Machine 1 A total of 24 monthly instalments of £1,500 payable in advance and terminable at any time by either party. The cash price of this machine is £50,000 and its estimated useful life is 7 years. Machine 2 The cash price of the machine is £31,700 and is expected to last 5 year with no terminal value. Primary period of lease is 4 years, with rentals payable annually in arrears at £10,000. Implicit interest rate at 10%. Company's policy is to depreciate the machine on a straight-line basis. (a) Using information provided above, explain what the differences are between finance and operating leases. (b) For the lease of machine 1, identify the amount of interest charge for the financial year 2012 using straight-line method. (c) For machine 2, show the effect of this lease, on the statements of comprehensive income and statements of financial position for the four years to 31 December 2015, under the following headings: (i) lease creditor (ii) finance charge, allocated using actuarial method (iii) depreciation charge, and (iv) net book value of assets A company entered into two different leases on Ist January 2012: Machine 1 A total of 24 monthly instalments of £1,500 payable in advance and terminable at any time by either party. The cash price of this machine is £50,000 and its estimated useful life is 7 years. Machine 2 The cash price of the machine is £31,700 and is expected to last 5 year with no terminal value. Primary period of lease is 4 years, with rentals payable annually in arrears at £10,000. Implicit interest rate at 10%. Company's policy is to depreciate the machine on a straight-line basis. (a) Using information provided above, explain what the differences are between finance and operating leases. (b) For the lease of machine 1, identify the amount of interest charge for the financial year 2012 using straight-line method. (c) For machine 2, show the effect of this lease, on the statements of comprehensive income and statements of financial position for the four years to 31 December 2015, under the following headings: (i) lease creditor (ii) finance charge, allocated using actuarial method (iii) depreciation charge, and (iv) net book value of assets
Expert Answer:
Answer rating: 100% (QA)
Finance leases A finance lease is a type of financing in which the leasing firm purchases an asset f... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
Posted Date:
Students also viewed these accounting questions
-
On January 1, Year 8, Von Company entered into two noncancellable leases of new machines for use in its manufacturing operations. The first lease does not contain a bargain purchase option and the...
-
On January 1, 2007 Von Company entered into two noncancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option. The lease...
-
On January 1, 2010, Von Company entered into two noncancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option. The...
-
Incorporated in 1990, Raju Diary Ltd is one of the leading manufacturers and marketers of diary-based branded foods in India. In the initial years, its operations were restricted only to the...
-
Starline & Co. has no debt, and its cost of equity is 14 percent. It can borrow at 8 percent. The corporate tax rate is 40 percent. a. Calculate the cost of equity and the weighted average cost of...
-
Goring Dairy leases its milking equipment from King Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $30,300 due at...
-
With reference to Example 13, repeat the analysis after combining the categories below average and average in the training program and the categories poor and average in success. Comment on the form...
-
Davide's Arrangements purchases, wholesales, and retails fresh flowers. Company estimates reveal the following for the first three months of the company's 2011 fiscal year: Davide's pays 60 percent...
-
You want to buy a $30,000 car in 4 years. If you have $20,000 today, what interest rate do you need? What is I/Y?
-
A system offers four service classes A, B, C and D, which differ in price tag and have a distinctive public method doA(), doB(), doC(), and doD(), respectively. These classes do share an identical...
-
Wyoming Co. is a nonprofit educational institution that wants to import educational software products from Hong Kong and sell them in the United States. It wants to assess the net present value of...
-
Solve Problem P16.7 using the direct summation of global element stiffness matrices. Problem P16.7 For the frame shown in Figure P16.7, write the stiffness matrix in terms of the three degrees of...
-
What is the value of a portfolio analysis approach such as the Boston Box?
-
What is the burden of proof as it relates to bailments ?
-
Racial prejudice has been a serious problem in American society for a long time. How do you reconcile this with the fact that diversity management training generally seems to be successful? In other...
-
The Consolidata Services Company (CDS) was established to provide small bus i nesses with payroll services. All CDS clients were required to pr ovide CDS with an advance deposit equal to the amount...
-
How to make the program (static nested Class) Create a class Calculator, which represents a regular scientific calculator. It should have an instance variable history, which is a list of objects of...
-
A. Select a recent issue (paper or online) of Report on Business Magazine, Canadian Business Magazine (online only), Bloomberg Businessweek, Fast Company, The Economist, or another business magazine....
-
List and briefly define the five components of pension expense according to FASB Statement No. 87.
-
Briefly describe how to determine and record the gain or loss on the sale of an investment in available-for-sale securities.
-
Distinguish between bond premiums or discounts and bond issue costs.
-
Do you expect to be able to observe the diffraction of light through \((a)\) the front door to your house; \((b)\) the holes in a button; (c) the gaps between threads of the fabric of an umbrella?
-
Figure 34.21 shows diffracted \(\mathrm{x}\)-ray intensity as a function of the Bragg angle \(\alpha\), obtained using \(\mathrm{x}\) rays having a wavelength of \(0.11 \mathrm{~nm}\). (a) Without...
-
Coherent green light of wavelength \(530 \mathrm{~nm}\) passes through two very narrow slits separated by \(1.00 \mu \mathrm{m}\). What is \((a)\) the angular location of the first-order bright...
Study smarter with the SolutionInn App