Teal Industries and Flint Inc Accounting for Leases Assignment

Anonymous
timer Asked: Apr 15th, 2019
account_balance_wallet $19.99

Question Description

Teal Industries and Flint Inc. enter into an agreement that requires Flint Inc. to build three diesel-electric engines to Teal’s specifications. Upon completion of the engines, Teal 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, 2017, and requires annual rental payments of $384,165 each January 1, starting January 1, 2017.Teal’s incremental borrowing rate is 10%. The implicit interest rate used by Flint Inc. and known to Teal is 8%. The total cost of building the three engines is $2,395,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Teal depreciates similar equipment on a straight-line basis. At the end of the lease, Teal assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs.show your solution in word document

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Teal Industries and Flint Inc Accounting for Leases Assignment
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Teal Industries and Flint Inc Accounting for Leases Assignment
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Teal Industries and Flint Inc Accounting for Leases Assignment
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Tutor Answer

VickyT
School: Carnegie Mellon University

kindly check if the answers are satisfactory. don't hesitate to reach out for any clarification. regards😌

Running Head: ACCOUNTING FOR LEASES

Accounting for Leases

Student Name
Institutional Affiliation
Date

1

ACCOUNTING FOR LEASES

2
Accounting for Leases

Teal Industries and Flint Inc. enter into an agreement that requires Flint Inc. to build three
diesel-electric engines to Teal’s specifications. Upon completion of the engines, Teal has
agreed to lease them for a period of 10 years and to assume all costs and risks of ownership.
The lease is non-cancelable, becomes effective on January 1, 2017, and requires annual rental
payments of $384,165 each January 1, starting January 1, 2017.
Teal’s incremental borrowing rate is 10%. The implicit interest rate used by Flint Inc. and
known to Teal is 8%. The total cost of building the three engines is $2,395,000. The economic
life of the engines is estimated to be 10 years, with residual value set at zero. Teal depreciates
similar equipment on a straight-line basis. At the end of the lease, Teal assumes title to the
engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative
to unreimbursable lessor costs.
(b) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the
books of Teal 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.)
Present value of lease payment
$384,165 × 7.24689 = 2,784,001
Present value of an annuity due at 8% for 10 years
Account Titles and Explanation
Leased Equipment

Debit

Credit

2,784,001

Lease Liability

2,784.001

(c) Prepare the journal entry or entries to record the transaction on January 1, 2017, on the
books of Flint 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.)
Account Titles and Explanation

Debit

Lease Receivable

2,784,001

Cost of Goods Sold

2,395,000

Credit

Sales Revenue

2,784,001

Inventory

2,395,000

(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on
January 1, 2017. (Credit account titles are automatically indented when amount is entered.
Do not indent manually.)

ACCOUNTING FOR LEASES

3

Account Titles and Explanation Debit

Credit

Lessee (January 1, 2017)
Lease Liability

384,165

Cash

384,165

Lessor (January 1, 2017)

Debit

Cash

Credit

384,165

Lease Re...

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Anonymous
awesome work thanks

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