ACC/305 ACC305 ACC 305 WEEK 6 HOMEWORK

ACC 305 WEEK 6 HOMEWORK

Brief Exercise 21-3

Rick Kleckner Corporation recorded a capital lease at $299,040 on January 1, 2014. The interest rate is 11%. Kleckner Corporation made the first lease payment of $52,351 on January 1, 2014. The lease requires 8 annual payments. The equipment has a useful life of 8 years with no salvage value.

Prepare Kleckner Corporation’s December 31, 2014, adjusting entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 125.)

Brief Exercise 21-8

Jennifer Brent Corporation owns equipment that cost $102,480 and has a useful life of 8 years with no salvage value. On January 1, 2014, Jennifer Brent leases the equipment to Donna Havaci Inc. for one year with one rental payment of $17,400 on January 1.

Prepare Jennifer Brent Corporation’s 2014 journal entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Brief Exercise 21-10

Indiana Jones Corporation enters into a 6-year lease of equipment on January 1, 2014, which requires 6 annual payments of $42,600 each, beginning January 1, 2014. In addition, Indiana Jones guarantees the lessor a residual value of $19,170 at lease-end. The equipment has a useful life of 5 years. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the equipment is $182,869.

Prepare Lost Ark’s January 1, 2014, journal entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Exercise 21-2 Pat Delaney Company leases an automobile with a fair value of $18,257 from John Simon Motors, Inc., on the following terms. 1.   Noncancelable term of 60 months. 2.   Rental of $370 per month (at end of each month). (The present value at 1% per month is $16,633.) 3.   Estimated residual value after 60 months is $1,110. (The present value at 1% per month is $611.) Delaney Company guarantees the residual value of $1,110. 4.   Estimated economic life of the automobile is 63 months. 5.   Delaney Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown.

 

 

(c) Record the lease on Delaney Company’s books at the date of inception. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(d) Record the first month’s depreciation on Delaney Company’s books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 15.)

(e) Record the first month’s lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 15.)

 

Exercise 21-7 (Part Level Submission)

On January 1, 2014, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease.

1.		The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2.		Equal rental payments are due on January 1 of each year, beginning in 2014.
3.		The fair value of the equipment on January 1, 2014, is $211,500, and its cost is $173,430.
4.		The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,440. Flynn depreciates all of its equipment on a straight-line basis.
5.		Bensen set the annual rental to ensure an 10% rate of return. Flynn’s incremental borrowing rate is 11%, and the implicit rate of the lessor is unknown.
6.		Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

(Both the lessor and the lessee’s accounting period ends on December 31.)

 

TABLE 6-5 PRESENT VALUE OF AN ANNUITY DUE OF 1

 

(b)

Calculate the amount of the annual rental payment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

 

(c)

Prepare all the necessary journal entries for Flynn for 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

(d)

Prepare all the necessary journal entries for Bensen for 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Exercise 21-9 (Part Level Submission)

The following facts pertain to a noncancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee.

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

 

 

 

 

 

 

 

TABLE 6-2 PRESENT VALUE of 1

 

TABLE 6-5 PRESENT VALUE OF AN ANNUITY DUE OF 1

 

 

 

(a)

 

Compute the amount of the lease receivable at the inception of the lease. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 15.25.)

(b)

 

Prepare a lease amortization schedule for Mooney Leasing Company for the 5-year lease term. (Round answers to 2 decimal places, e.g. 16.25.)

Problem 21-3 (Part Level Submission)

Winston Industries and Ewing Inc. enter into an agreement that requires Ewing Inc. to build three diesel-electric engines to Winston’s specifications. Upon completion of the engines, Winston has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2014, and requires annual rental payments of $435,438 each January 1, starting January 1, 2014.

Winston’s incremental borrowing rate is 11%. The implicit interest rate used by Ewing Inc. and known to Winston is 9%. The total cost of building the three engines is $2,515,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs.

 

TABLE 6-5 PRESENT VALUE OF AN ANNUITY DUE OF 1

(b), (c) and (d)

 

	Your answer is correct.

(b) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Winston Industries.(Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

(c) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Ewing Inc. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)

 (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2014.(Credit account titles are automatically indented when amount is entered. Do not indent manually.)

 

(e) Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2014. (Prepare a lease amortization schedule for 2 years.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)

Multiple Choice Question 34

From the lessee’s perspective, in the earlier years of a lease, the use of the

capital method will enable the lessee to report higher income, compared to the operating method.

 

capital method will cause debt to increase, compared to the operating method.

 

operating method will cause debt to increase, compared to the capital method.

 

operating method will cause income to decrease, compared to the capital method.

 

IFRS Multiple Choice Question 06

Which of the following statements is true when comparing the accounting for leasing transactions under U.S. GAAP with IFRS?

The IFRS leasing standard is the subject of over 30 interpretations since its issuance in 1982.

 

IFRS requires that companies provide a year-by-year breakout of future noncancelable lease payments due in years 1 through 5.

 

IFRS does not provide detailed guidance for leases of natural resources, sale-leasebacks, and leveraged leases.

 

IFRS for leases is more “rules-based” than U.S. GAAP and includes many bright-line criteria to determine ownership.

 

IFRS Multiple Choice Question 07

Which of the following is one of the criteria for recording a lease as a finance lease, under IFRS?

The lease doesn’t contain a bargain-purchase option.

 

The lease term is for the major part of the economic life of the asset.

 

The present value of the minimum lease payments amounts to 75% of the fair value of the leased asset.

 

The lease must be cancelable.

 

IFRS Multiple Choice Question 08

Which of the following statements is true?

Operating leases under GAAP are referred to as finance leases under IFRS.

 

Under IFRS, in computing the present value of the minimum lease payments, the lessee is required to use the incremental borrowing rate.

 

IFRS is more general in its provisions for determining if a lease arrangement transfers the risks and rewards of ownership.

 

IFRS has an additional lessor criterion for capitalization that collectability of the payments required from the lessee is reasonably predictable.