Non-cancelable Lease

timer Asked: Sep 6th, 2013

Question description

  • Luv Company enters into a non-cancelable lease agreement with Soap Company. The details of the agreement are as follows:
  • Inception date Jan 1, 2011
  • Annual lease payment at beginning of each year, starting Jan 1, 2011 $18,000
  • Bargain-purchase option at the end of the lease $4,000
  • Lease term 5 years
  • Economic life of leased equipment 5 years
  • Lessor’s cost $60,000
  • Fair value of asset $70,000
  • Lessor’s implicit rate 10%
  • Lessee’s implicit rate 10%
  • Present value of annuity due i=10%, n=5 periods 4.16987
  • Present value i=10%, n=5 years 0.621
  • Soap Company will receive the lease payments. The collectability of the lease payments is reasonably predictable and there are no uncertainties surrounding the costs to be incurred by Soap company—the lessor.
  • • For Luv company—the lessee—what is the nature of the lease? What tests does it meet?
  • • For Soap company—the lessor—what is the nature of the lease?
  • • Prepare the amortization schedule for Luv Company for the 5-year term.
  • • Prepare the journal entries on the books of Luv company—the lessee—for recording the lease and the recording of lease payment and expenses for 2011.
REQUIREMENTS: Original & 1000 words+

Tutor Answer

(Top Tutor) Studypool Tutor
School: Carnegie Mellon University
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors