E21-3 (Lessee Entries; Capital Lease with Executory Costs) Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement.
1.) The agreement requires equal rental payments of $72,000 beginning on January 1, 2008.
2.) The fair value of the building on January 1, 2008 is $440,000
3.) The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,000. Kimberly Clark depreciates similar buildings on the straight line method.
4.) The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5.) Kimberly Clark's incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly Clark.
6.) The yearly rental payment includes $2,470.51 of executory costs related to taxes on property.
Instructions
Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the years 2008 and 2009, Kimberly Clark's corporate year end is December 31.
Click here for the solution: Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company
Showing posts with label noncancelable. Show all posts
Showing posts with label noncancelable. Show all posts
Wednesday, November 11, 2015
Wednesday, June 24, 2015
(Lessor and Lessee Accounting and Disclosures) Sylvan Inc. entered into a noncancelable lease arrangement with Breton Leasing Corporation for a certain machine
Case 21-2 (CA21-2) (Lessor and Lessee Accounting and Disclosures) Sylvan
Inc. entered into a noncancelable lease arrangement with Breton Leasing
Corporation for a certain machine. Breton's primary business is
leasing; it is not a manufacturer or dealer. Sylvan will lease the
machine for a period of 3 years, which is 50% of the machine's economic
life. Breton will take possession of the machine at the end of the
initial 3-year lease and lease it to another, smaller company that does
not need the most current version of the machine. Sylvan does not
guarantee any residual value of the machine and will not purchase the
machine at the end of the lease term.
Sylvan's incremental borrowing rate is 10%, and the implicit rate in the lease is 9%. Sylvan has no way of knowing the implicit rate used by Brenton. Using either rate in the lease is 9%. Sylvan has no way of knowing the implicit rate used by Brenton. Using either rate, the present value of the minimum lease payments is between 90% and 100% of the fair value of the machine at the date of the lease agreement. Sylvan has agreed to pay all executor costs directly, and no allowance for the costs is included in the lease payments.
Brenton is reasonably certain that Sylvan will pay all lease payments, and because Sylvan has agreed to pay all executor cost, there are no important uncertainties regarding costs to be incurred by Breton. Assume that no indirect cost are involved.
Instructions:
(a) With respect to Sylvan (the lessee), answers the following.
(1) What type of lease has been entered into? Explain the reason for your reason.
(2) How should Sylvan compute the appropriate amount to be recorded for the else or asset acquired?
(3) What accounts will be created or affected by the transaction, and how will the lease or asst and other cost related to the transaction be matched with earnings.
(4) What disclosures must Sylvan make regarding the leased asset?
(b) With respect to Breton (the lessor). Answer the following:
(1) What type of leasing arrangement has been entered into? Explain the reason for your reason.
(2) How should the lease be recorded by Brenton, and how are the appropriate amounts determined?
(3) How should Breton determined the appropriate amount of earning to be recognized from each lease payment?
(4) What disclosures must Breton make regarding the lease?
Click here for the solution: (Lessor and Lessee Accounting and Disclosures) Sylvan Inc. entered into a noncancelable lease arrangement with Breton Leasing Corporation for a certain machine
Sylvan's incremental borrowing rate is 10%, and the implicit rate in the lease is 9%. Sylvan has no way of knowing the implicit rate used by Brenton. Using either rate in the lease is 9%. Sylvan has no way of knowing the implicit rate used by Brenton. Using either rate, the present value of the minimum lease payments is between 90% and 100% of the fair value of the machine at the date of the lease agreement. Sylvan has agreed to pay all executor costs directly, and no allowance for the costs is included in the lease payments.
Brenton is reasonably certain that Sylvan will pay all lease payments, and because Sylvan has agreed to pay all executor cost, there are no important uncertainties regarding costs to be incurred by Breton. Assume that no indirect cost are involved.
Instructions:
(a) With respect to Sylvan (the lessee), answers the following.
(1) What type of lease has been entered into? Explain the reason for your reason.
(2) How should Sylvan compute the appropriate amount to be recorded for the else or asset acquired?
(3) What accounts will be created or affected by the transaction, and how will the lease or asst and other cost related to the transaction be matched with earnings.
(4) What disclosures must Sylvan make regarding the leased asset?
(b) With respect to Breton (the lessor). Answer the following:
(1) What type of leasing arrangement has been entered into? Explain the reason for your reason.
(2) How should the lease be recorded by Brenton, and how are the appropriate amounts determined?
(3) How should Breton determined the appropriate amount of earning to be recognized from each lease payment?
(4) What disclosures must Breton make regarding the lease?
Click here for the solution: (Lessor and Lessee Accounting and Disclosures) Sylvan Inc. entered into a noncancelable lease arrangement with Breton Leasing Corporation for a certain machine
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