Delta Inc. is a leading frozen food manufacturer in United States of America and follows US...

   

 

 

Transcribed Image Text:

Delta Inc. is a leading frozen food manufacturer in United States of America and follows US GAAP. Its sales have more than doubled in recent years. To Increase production to meet the market demand for its product, the company has decided to lease a manufacturing equipment with a fair value of $1,000,000 on 31 December 2020. The equipment has an expected economic life of 10 years with zero salvage value at the end of Its useful life. Delta Inc. uses straight line method for depreciation for its long term assets. Fiscal year end for Delta Inc. Is 31 December. Robbins Inc. (lessor), a regional finance company, has submitted a proposal for a non- cancellable lease period of 10 years from 31 December 2020 for Delta Inc. (lessee) evaluation. Annual lease installments of $128,177 are payable at the beginning of each year starting on 31 December 2020. Delta Inc. has an incremental borrowing rate of 6% per annum at December 31 2020. Requirement (1) 1. Compute the present value of minimum lease payment (MLP) from Delta Inc. (lessee) perspective. Based on your calculations, indicate whether the lease should be classified as a finance or operating lease under each proposal. (3 marks) Please use the following annuity due table: n 3% 5 years 4.71710 10 years 8.78611 6% 4.46511 7.80169 2. What would be the total amount of expenses charged to income statement by Delta Inc. (lessee) for the fiscal year ending December 31, 2021? (2 marks) 3. What would be the amount to be reported in the cash flow statement under financing activities by Delta Inc. (lessee) for the fiscal year ending December 31, 2021? (2 marks) 4. What would be the total expenses reported by Delta Inc. (lessee) throughout the 10 years lease period? (2 marks) Delta Inc. is a leading frozen food manufacturer in United States of America and follows US GAAP. Its sales have more than doubled in recent years. To Increase production to meet the market demand for its product, the company has decided to lease a manufacturing equipment with a fair value of $1,000,000 on 31 December 2020. The equipment has an expected economic life of 10 years with zero salvage value at the end of Its useful life. Delta Inc. uses straight line method for depreciation for its long term assets. Fiscal year end for Delta Inc. Is 31 December. Robbins Inc. (lessor), a regional finance company, has submitted a proposal for a non- cancellable lease period of 10 years from 31 December 2020 for Delta Inc. (lessee) evaluation. Annual lease installments of $128,177 are payable at the beginning of each year starting on 31 December 2020. Delta Inc. has an incremental borrowing rate of 6% per annum at December 31 2020. Requirement (1) 1. Compute the present value of minimum lease payment (MLP) from Delta Inc. (lessee) perspective. Based on your calculations, indicate whether the lease should be classified as a finance or operating lease under each proposal. (3 marks) Please use the following annuity due table: n 3% 5 years 4.71710 10 years 8.78611 6% 4.46511 7.80169 2. What would be the total amount of expenses charged to income statement by Delta Inc. (lessee) for the fiscal year ending December 31, 2021? (2 marks) 3. What would be the amount to be reported in the cash flow statement under financing activities by Delta Inc. (lessee) for the fiscal year ending December 31, 2021? (2 marks) 4. What would be the total expenses reported by Delta Inc. (lessee) throughout the 10 years lease period? (2 marks)

Answer rating: 100% (QA)

1 The present value of minimum lease payment MLP from Delta Inc lessee perspective can be calculated ... View the full answer