6 Accounting Exercise Questions

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Fill in the boxes with correct answers. Brief Exercise 21-6 Assume that IBM leased equipment that was carried at a cost of $96,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2017, with equal rental payments of $20,038 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $96,000. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 10%, no bargainpurchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM’s January 1, 2017, journal entries at the inception of the lease. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. 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.) Click here to view factor tables Date Account Titles and Explanation Debit Credit January 1, 2017 (To record the lease.) January 1, 2017 (To record first lease payment.) Exercise 21-2 Nash Company leases an automobile with a fair value of $11,341 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50 months. 2. Rental of $270 per month (at end of each month). (The present value at 1% per month is $10,583.) 3. Estimated residual value after 50 months is $1,060. (The present value at 1% per month is $645.) Nash Company guarantees the residual value of $1,060. 4. Estimated economic life of the automobile is 60 months. 5. Nash Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown. Don't show me this message again for the assignment What is the present value of the minimum lease payments? $ The present value of the minimum lease payments Don't show me this message again for the assignment (c) Record the lease on Nash Company’s books at the date of inception. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (d) Record the first month’s depreciation on Nash Company’s books (assume straight-line). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit (e) Record the first month’s lease payment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit Exercise 21-8 (Part Level Submission) The following facts pertain to a noncancelable lease agreement between Cullumber Leasing Company and Riverbed Company, a lessee. Inception date: May 1, 2017 Annual lease payment due at the beginning of each year, beginning with May 1, 2017 $22,965.87 Bargain-purchase option price at end of lease term $3,600 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $69,000 Fair value of asset at May 1, 2017 $98,000 Lessor’s implicit rate 10 % Lessee’s incremental borrowing rate 10 % 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. The expected residual value of the equipment at the end of 5 (10) years is $12,000 ($0). Click here to view factor tables Don't show me this message again for the assignment (c) Prepare a lease amortization schedule for Riverbed Company for the 5-year lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25126 and Round answers to 2 decimal places, e.g. 15.25.) Date RIVERBED COMPANY (Lessee) Lease Amortization Schedule Annual Lease Payment Reduction of Plus Interest on Lease BPO Liability Liability Lease Liability $ $ $ $ $ $ 5/1/17 5/1/17 5/1/18 5/1/19 5/1/20 5/1/21 4/30/22 Exercise 21-12 On January 1, 2017, Sarasota Co. leased a building to Ivanhoe Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. 2. The leased building cost $4,540,000 and was purchased for cash on January 1, 2017. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $257,000 per year and are made at the end of the year. 5. Property tax expense of $84,600 and insurance expense of $9,200 on the building were incurred by Sarasota in the first year. Payment on these two items was made at the end of the year. 6. Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Sarasota Co. should make in 2017. (Credit account titles $ are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit (To record receipt of lease payment.) (To record depreciation.) (To record insurance and property tax.) (b) Prepare the journal entries that Ivanhoe Inc. should make in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit 12/31/17 (c) If Sarasota paid $30,400 to a real estate broker on January 1, 2017, as a fee for finding the lessee, how much should Sarasota Co. report as an expense for this item in 2017? Expense should be reported Exercise 21-14 $ On February 20, 2017, Cheyenne Inc. purchased a machine for $1,431,600 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Ayayai Company on March 1, 2017, for a 4-year period at a monthly rental of $19,200. There is no provision for the renewal of the lease or purchase of the machine by the lessee at the expiration of the lease term. Cheyenne paid $27,360 of commissions associated with negotiating the lease in February 2017. (a) What expense should Ayayai Company record as a result of the facts above for the year ended December 31, 2017? Rent Expense $ (b) What income or loss before income taxes should Cheyenne record as a result of the facts above for the year ended December 31, 2017? (Hint: Amortize commissions over the life of the lease.) Income from lease before taxes $ Exercise 21-16 Presented below are four independent situations. (Round answers to 0 decimal places, e.g. 125. If answer is 0, please enter 0. Do not leave any fields blank.) (a) On December 31, 2017, Sarasota Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $523,900, its carrying amount is $401,100, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2017. $ The amount of deferred revenue to be reported (b) On December 31, 2017, Ivanhoe Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sales price of the machine was $478,900, the carrying amount is $422,400, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one year is $34,900. At December 31, 2017, how much should Ivanhoe report as deferred revenue from the sale of the machine? $ The amount of deferred revenue to be reported (c) On January 1, 2017, Shamrock Corp. sold an airplane with an estimated useful life of 10 years. At the same time, Shamrock leased back the plane for 10 years. The sales price of the airplane was $504,900, the carrying amount $378,400, and the annual rental $74,529. Shamrock Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. How much gain on the sale should be reported at the end of 2017 in the financial statements? The gain on the sale should be reported $ (d) On January 1, 2017, Bridgeport Co. sold equipment with an estimated useful life of 5 years. At the same time, Bridgeport leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $214,300, the carrying amount is $298,500, the monthly rental under the lease is $6,100, and the present value of the rental payments is $115,643. For the year ended December 31, 2017, determine which items would be reported on its income statement for the sale-leaseback transaction. $ $

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