Cantu Excavating owns the building it uses; it had an original cost of $820,000 and a...

 

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Cantu Excavating owns the building it uses; it had an original cost of $820,000 and a net book value of $410,000 as of January 1, 2017. On this date, the building was sold to the Royal Leasing Company for $470,000 and simultaneously leased back to Cantu Excavating. The lease has a guaranteed, 4-year term and required payments on December 31 of each year. The payments are $149,000, and the lease allows the property to revert to the lessee at the end of the lease. Cantu Excavating could have mortgaged this property under similar terms at an interest rate of 8%. The Royal Leasing Company will pay property taxes of $7,000 per year. These costs are included in the lease payment. Cantu Excavating will pay maintenance and operating costs. The building is being depreciated straight line over its remaining 4-year life. Please make sure your final answer(s) are accurate to 2 decimal places. a) Calculate the NPV PV $470,322.01 FV 4 I/Y 8% PMT 142000 (payments property tax) b) Prepare the lessee's lease amortization schedule date pmt interest principal balance 2017 8% $470,322.01 142000 $37,625.76 $104,374.24 $365,947.77 142000 $29,275.82 $112,724.18 $253,223.59 142000 $20,257.89 $121,742.11 $131,481.48 142000 $10,518.52 $131,481.48 2017 2018 2019 2020 $0.00 c) Entries to record the sale and leaseback. 01-Jan cash 470,000.00 sold for accumulated depreciaiton, leased building building deferred gain on sale-leaseback Sale 01-Jan building under lease $470,322.01 obligations under lease 470,322.01 lease asset and obligation d) Prepare the lease payment and lessee's year end adjusting journal entries for 2017 31-Dec depreciation expense, leased building 117,580.50 accumulated depreciation, leased building 117,580.50 depreciation 31-Dec deferred gain on sale-leaseback depreciation expense, leased building amortize deferred gain 31-Dec interest expense 37,625.76 obligation under lease 104,374.24 property taxes expense 7,000.00 cash 149,000.00 interest expense Cantu Excavating owns the building it uses; it had an original cost of $820,000 and a net book value of $410,000 as of January 1, 2017. On this date, the building was sold to the Royal Leasing Company for $470,000 and simultaneously leased back to Cantu Excavating. The lease has a guaranteed, 4-year term and required payments on December 31 of each year. The payments are $149,000, and the lease allows the property to revert to the lessee at the end of the lease. Cantu Excavating could have mortgaged this property under similar terms at an interest rate of 8%. The Royal Leasing Company will pay property taxes of $7,000 per year. These costs are included in the lease payment. Cantu Excavating will pay maintenance and operating costs. The building is being depreciated straight line over its remaining 4-year life. Please make sure your final answer(s) are accurate to 2 decimal places. a) Calculate the NPV PV $470,322.01 FV 4 I/Y 8% PMT 142000 (payments property tax) b) Prepare the lessee's lease amortization schedule date pmt interest principal balance 2017 8% $470,322.01 142000 $37,625.76 $104,374.24 $365,947.77 142000 $29,275.82 $112,724.18 $253,223.59 142000 $20,257.89 $121,742.11 $131,481.48 142000 $10,518.52 $131,481.48 2017 2018 2019 2020 $0.00 c) Entries to record the sale and leaseback. 01-Jan cash 470,000.00 sold for accumulated depreciaiton, leased building building deferred gain on sale-leaseback Sale 01-Jan building under lease $470,322.01 obligations under lease 470,322.01 lease asset and obligation d) Prepare the lease payment and lessee's year end adjusting journal entries for 2017 31-Dec depreciation expense, leased building 117,580.50 accumulated depreciation, leased building 117,580.50 depreciation 31-Dec deferred gain on sale-leaseback depreciation expense, leased building amortize deferred gain 31-Dec interest expense 37,625.76 obligation under lease 104,374.24 property taxes expense 7,000.00 cash 149,000.00 interest expense