Question: Use the information for the Phelps/Walsh lease in E21.13, except that Walsh was unaware of the implicit rate used in the lease by Phelps and

Use the information for the Phelps/Walsh lease in E21.13, except that Walsh was unaware of the implicit rate used in the lease by Phelps and has an incremental borrowing rate of 9%.
Phelps plc leases a building to Walsh Ltd. on January 1, 2019. The following facts pertain to the lease agreement.
1. The lease term is 5 years, with equal annual rental payments of £4,703 at the beginning of each year.
2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.
3. The building has a fair value of £23,000, a book value to Phelps of £16,000, and a useful life of 6 years.
4. At the end of the lease term, Phelps and Walsh expect there to be an unguaranteed residual value of £4,000.
5. Phelps wants to earn a return of 8% on the lease, and collectibility of the payments is probable. This rate is known by Walsh.
Instructions
How would your answer to E21.13a. change?

Step by Step Solution

★★★★★

3.62 Rating (170 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

If the lessee is unaware of the rate implicit in the leas... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

1353-B-M-A-I(4623).docx

120 KBs Word File

Students Have Also Explored These Related Managerial Accounting Questions!

Use the information for Lenovo from BE21-6. Assume the direct-financing lease was recorded at a present value of $150,000. In BE21-6, Assume that Lenovo (CHN) leased equipment that was carried at a...

Use the information for Wing Corporation and Sharda Inc. from BE209. Assume that Sharda, the lessor, has a June 30 year end. Prepare Shardas entry on August 15, 2011, and any adjusting entry needed...

Use the information for Lalonde and Costner from BE202. Explain, using numbers, how Costner determined the amount of the lease payment of $25,173. In BE Lalonde Ltd., a public company following IFRS,...

E20.14 (LO 2) (Lessee Entries) Use the information for the Phelps/Walsh lease in E20.13. In this instance, however, Walsh is unaware of the implicit rate used in the lease by Phelps and has an...

TARGET CORPORATION Notes to Consolidated Financial Statements 1. Summary of Accounting Policies Organization We are a general merchandise retailer selling products to our guests through our stores...

1. What is the book value of debt securities Pepsi has at the end of fiscal 2023? Does Pepsi classify them as held-to-maturity, available-for-sale or trading? Which balance sheet item(s) contain...

Flanigans Company leases a building to Wellington, Inc. on January 1,2020 . The following facts pertain to the lease agreement. 1. The lease term is 6 years, with equal annual rental payments of...

Phelps Company leases a building to Walsh, Inc. on January 1 , 2 0 2 5 . The following facts pertain to the lease agreement. The lease term is 5 years, with equal annual rental payments of $ 4 , 7 0...

Verify Greer's theorem in a plane for integerate(4xy-x^2)dx + (6x+4y^2)dy when c is a closed curve & the region bunded by y=x^2 and x=y^2.

Which of the following is most directly considered part of the cost of debt? Default risk premium Equity risk premium Market equity valuation Capital gains tax

1.On October 28, 2011, the St. Louis Cardinals won game seven of the World Series. For the next month the stock market fell. The S&P 500 index (an index of the stock prices of the 500 largest...

Harnish Inc. acquired 25% of the outstanding common shares of Gregson Inc. on December 31, 2016. The purchase price was $1,250,000 for 62,500 shares, and is equal to 25% of Gregson's carrying amount....

On January 1, 2017, Rae Corporation purchased 30% of the common shares of Martz Limited for $196,000. Martz Limited shares are not traded in an active market. The carrying amount of Martz's net...

On January 3, 2017, Mego Limited purchased 3,000 (30%) of the common shares of Sonja Corp. for $438,000. The following information is provided about the identifiable assets and liabilities of Sonja...

You have $400 and a bank is offering 5.5% interest on deposits. If you deposit the money in the bank, how much will you have in one year? In one year you will have $ (Round to the nearest cent.)

Which are the following items are both reconciling items on the bank side of the reconciliation? A.deposit transit and outstanding checks B.bank service charge and correction of book error C.deposit...

Part 2 : Module 2 : Chapter 2 Duration: ( Be sure to show your work for credit ) . Reminder: For problems, be sure to show your work below to receive credit for problems ) . If you use a financial...