South Van Limited (SVL), a December 31 year-end company, leased equipment from North Van Limited (NVL)....

 

Transcribed Image Text:

South Van Limited (SVL), a December 31 year-end company, leased equipment from North Van Limited (NVL). The lease terms are as follows: SVL's lease quote received from NVL: Payments totaling $18,400 beginning each lease year with the first payment due at the time of signing Lease term: 7 years, annual payments Estimated equipment useful life: 10 years Lease start date: September 30, 2020 Purchase option at the end of lease: $8,000; well below estimated future market value for such high re-sale equipment NVL priced the lease to earn a return of 6% and estimated fair value of the equipment is $100,000. SVL's cost of capital is 5% and SVL knows the rate applied by NVL. The total annual payments of $18,400 included an amount of $2,400 for a 12 month insurance policy provided by NVL, for certain equipment damages. Round all calculation so the nearest $; no cents Required #1 SVL planned to capitalize the lease at its cost of capital (5%) but sought a second opinion from you, the company's external CPAS. Provide your comments. Required #2 Prepare entries for SVL required at September 30, 2020 and December 31, 2020. September 30: December 31: Required #3 Prepare, in good form for SVL, an excerpted Statement of Financial Position at December 31, 2020 with all accounts arising from entering into this lease. Show all supporting calculations, where applicable. South Van Limited (SVL), a December 31 year-end company, leased equipment from North Van Limited (NVL). The lease terms are as follows: SVL's lease quote received from NVL: Payments totaling $18,400 beginning each lease year with the first payment due at the time of signing Lease term: 7 years, annual payments Estimated equipment useful life: 10 years Lease start date: September 30, 2020 Purchase option at the end of lease: $8,000; well below estimated future market value for such high re-sale equipment NVL priced the lease to earn a return of 6% and estimated fair value of the equipment is $100,000. SVL's cost of capital is 5% and SVL knows the rate applied by NVL. The total annual payments of $18,400 included an amount of $2,400 for a 12 month insurance policy provided by NVL, for certain equipment damages. Round all calculation so the nearest $; no cents Required #1 SVL planned to capitalize the lease at its cost of capital (5%) but sought a second opinion from you, the company's external CPAS. Provide your comments. Required #2 Prepare entries for SVL required at September 30, 2020 and December 31, 2020. September 30: December 31: Required #3 Prepare, in good form for SVL, an excerpted Statement of Financial Position at December 31, 2020 with all accounts arising from entering into this lease. Show all supporting calculations, where applicable.

Answer rating: 100% (QA)

Required 1 SVL planned to capitalize the lease at its cost of capital 5 but sought a second opinion from you the companys external CPAs Provide your c... View the full answer