Chap 015

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 RHONE-METRO INDUSTRIES Annual Lease Payments Requirement 1: Lessor's Calculation
of Lease Payments Amount to be recovered (fair value) Less: Present value of the guaranteed residual value Amount to be recovered through periodic lease payments Lease payment at the beginning of each of four years
$ $ $
365,760 (17,075) 348,685 100,000

Correct!
Requirement 2: Present Value of Minimum Lease Payments Present value of periodic Lease payments Plus: Present value of the lessee-guaranteed residual value Present value of minimum lease payments (a) By Western Soya Co. (the lessee) Since at least one criterion is met, this is a capital lease to the lessee. Western Soya records the present value of minimum lease payments as a leased asset and a lease liability. (b) By Rhone-Metro (the lessor) Since the fair value equals the lessor's carrying value, there is no dealer's profit, making this a direct financing lease.
$ $
348,685 17,075 365,760

Correct!
Requirement 3: Journal entries on December 31, 2011 General Journal Account Western Soya Co. (Lessee) Leased equipment Lease payable Lease payable Cash Rhone-Metro (Lessor) Lease receivable Inventory of equipment Cash Lease receivable Debit 365,760 365,760 100,000 100,000
- Correct! - Correct!
Credit
365,760 365,760 100,000 100,000

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 Requirement 4: Lease Amortization Schedule Effective Interest 10%
Dec. 31 2011 2011 2012 2013 2014 2015
Payments 100,000 100,000 100,000 100,000 25,000 425,000

Correct!
Decrease in Balance 100,000 73,424 80,766 88,843 22,727 365,760

Correct!
26,576 19,234 11,157 2,273 59,240

Correct!
Outstanding Balance 365,760 265,760 192,336 111,570 22,727 -
Requirement 5: Journal entries on December 31, 2012 General Journal Account Western Soya Co. (Lessee) Interest expense Lease payable Cash Depreciation expense Accumulated depreciation Rhone-Metro (Lessor) Cash Lease receivable Interest revenue Debit 26,576 73,424 100,000 85,190 85,190
Credit
100,000 73,424 26,576
- Correct!
Requirement 6: Journal entries on December 31, 2015 General Journal Account Western Soya Co. (Lessee) Depreciation expense Accumulated depreciation Interest expense Lease payable Accumulated depreciation Loss on residual value guarantee Debit 85,190 85,190 2,273 22,727 340,760 23,500
- Correct!
Credit
Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 Leased equipment Cash Rhone-Metro (Lessor) Inventory of equipment Cash Lease receivable Interest revenue 365,760 23,500
- Correct!
1,500 23,500 22,727 2,273

- Correct!
Given Data P15-08: RHONE-METRO INDUSTRIES Lease length Equipment cost Expected useful life Lessee-guaranteed residual value Lease payments Incremental borrowing rate Implicit interest rate 4 years 365,760 6 years 25,000 100,000 12% 10%
$ $ $
Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-09 RHONE-METRO INDUSTRIES Annual Rental Payments Requirement 1: Lessor's Calculation of Rental Payments Amount to be recovered (fair value) Less: Present value of the unguaranteed residual value Amount to be recovered through periodic rental payments Rental payment at the beginning of each of four years Executory costs Rental payments including executory costs
$ $ $ $
365,760 (17,075) 348,685 100,000 4,000 104,000

Correct!
Requirement 2: Present Value of Minimum Lease Payments Present value of periodic rental payments
348,685
Correct!
(a) By Western Soya Co. (the lessee) Since at least one criterion is met, this is a capital lease to the lessee. Western Soya records the present value of minimum lease payments as a leased asset and a lease liability. (b) By Rhone-Metro (the lessor) Since the fair value exceeds the lessor's carrying value, the equipment is being "sold" at a profit, making this a sales-type lease.
Fair value minus : Carrying value Dealer's profit
$ $
365,760 (300,000) 65,760

Correct!
Requirement 3: Journal entries on December 31, 2011 General Journal Account Western Soya Co. (Lessee) Leased equipment Lease payable Lease payable Prepaid operating expense Cash Rhone-Metro (Lessor) Lease receivable Debit 348,685 348,685 100,000 4,000 104,000
Credit
365,760
Cost of goods sold Sales revenue Inventory of equipment Cash Payable Lease receivable
282,925 348,685 300,000 104,000 4,000 100,000

Requirement 4: Lease Amortization Schedule Effective Interest 10%
Dec. 31 2011 2011 2012 2013 2014
Payments 100,000 100,000 100,000 100,000 400,000

Correct!
Decrease in Balance 100,000 75,131 82,645 90,909 348,685

Correct!
24,869 17,355 9,091 51,315

Correct!
Outstanding Balance 348,685 248,685 173,554 90,909 -
Lessor Amortization Schedule Effective Interest 10%
Dec. 31 2011 2011 2012 2013 2014 2015
Payments 100,000 100,000 100,000 100,000 25,000 425,000

Correct!
Decrease in Balance 100,000 73,424 80,766 88,843 22,727 365,760

Correct!
26,576 19,234 11,157 2,273 59,240

Correct!
Outstanding Balance 365,760 265,760 192,336 111,570 22,727 -
Requirement 5: Journal entries on December 31, 2012 General Journal Account Western Soya Co. (Lessee) Depreciation expense Accumulated depreciation Operating expense Prepaid operating expense Interest expense Lease payable Prepaid operating expense Cash Rhone-Metro (Lessor) Cash Debit 87,171 87,171 4,000 4,000 24,869 75,131 4,000 104,000
- Correct! - Correct! - Correct!
Credit
104,000
- Correct!
Payable Lease receivable Interest revenue
4,000 73,424 26,576
Requirement 6: Journal entries on December 31, 2012 General Journal Account Western Soya Co. (Lessee) Operating expense Prepaid operating expense Depreciation expense Accumulated depreciation Accumulated depreciation Leased equipment Rhone-Metro (Lessor) Inventory of equipment Loss on leased assets Lease receivable Interest revenue Debit 4,000 4,000 87,171 87,171 348,685 348,685
Credit
1,500 23,500 22,727 2,273

- Correct!
Given Data P15-09: RHONE-METRO INDUSTRIES Lease length Equipment cost Expected useful life Normal sales price Expected residual value (not guaranteed) Lease payments Executory costs (included above) Incremental borrowing rate Implicit interest rate 4 years 300,000 6 years 365,760 25,000 104,000 4,000 12% 10%
$ $ $ $ $
Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-15 Requirement 1: MID-SOUTH AUTO LEASING Dealer's Profit Present value of quarterly lease payments Plus: Present value of the BPO price Present value of minimum lease payments Truck's cost Dealer's profit Lessor's Calculation of Quarterly Payments Amount to be recovered (fair value) Less: Present value of the BPO price Amount to be recovered through quarterly lease payments Lease payment at the beginning of each of the next 8 quarters $ $ $ 21,691 4,736 26,427 (25,000) 1,427
Correct!
$ $ $
26,427 (4,736) 21,691 3,000

Correct!
Requirement 2 Journal entries on September 30, 2011 General Journal Account Anything Grows (Lessee) Leased equipment Lease payable Lease payable Cash Mid-South Auto Leasing (Lessor) Lease receivable Cost of goods sold Sales revenue Inventory of equipment Cash Lease receivable Debit 26,427 26,427 3,000 3,000
Credit
26,427 25,000 26,427 25,000 3,000 3,000

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-15 Requirement 3: Lease Amortization Schedule Effective Interest 3%
Date 9/30/2011 9/30/2011 12/31/2011 3/31/2012 6/30/2012 9/30/2012 12/31/2012 3/31/2013 6/30/2013 9/29/2013
Payments 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 6,000 30,000
Correct!
Decrease in Balance 3,000 2,297 2,366 2,437 2,510 2,585 2,663 2,743 5,826 26,427
Correct!
703 634 563 490 415 337 257 174 3,573

Correct!
Outstanding Balance 26,427 23,427 21,130 18,764 16,327 13,817 11,232 8,569 5,826 0
Requirement 4: Journal entries on December 31, 2011 General Journal Account Anything Grows (Lessee) Depreciation expense Accumulated depreciation Interest expense Lease payable Cash Mid-South Auto Leasing (Lessor) Cash Lease receivable Interest revenue Debit 1,652 1,652 703 2,297 3,000
Credit
3,000 2,297 703
- Correct!
Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-15 Requirement 5: Journal entries on September 29, 2013 General Journal Account Anything Grows (Lessee) Depreciation expense Accumulated depreciation Interest expense Lease payable Cash Mid-South Auto Leasing (Lessor) Cash Lease receivable Interest revenue Debit 4,955 4,955 174 5,826 6,000
Credit
6,000 5,826 174
- Correct!
Given Data P15-15: MID-SOUTH AUTO LEASING Quarterly payments Lease term Truck purchase price at end of lease Residual value Estimated useful life Quarterly interest rate Approximate annual percentage rate Original truck purchase price $ $ $ 3,000 3 years 6,000 10,000 4 years 3% 12% 25,000
Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-18 Requirement 1: 1(a) By Bidwell Leasing (the lessor) Since at least one of the classification criterion and both additional lessor conditions are met, this is a capital lease to the lessor. Since the fair value is the lessor's cost, there is no dealer's profit, making this a direct financing lease.
1(b) By Red Baron Flying Club (the lessee) Since at least one criterion is met, this is a capital lease to the lessee. Red Baron records the present value of minimum lease payments as a leased asset and a lease liability.
Requirement 2: Journal entries on December 31, 2011 General Journal Account Red Baron Flying Club (Lessee) Leased equipment Lease payable Lease payable Cash Bidwell Leasing (Lessor) Lease receivable Inventory of equipment Lease receivable Cash Cash Lease receivable Debit 645,526 645,526 110,000 110,000
Credit
645,526 645,526 18,099 18,099 110,000 110,000

Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-18 Requirement 3: RED BARON FLYING CLUB Lease Amortization Schedule Effective Interest 10%
Dec. 31 2011 2011 1012 2013 2014 2015 2016 2017
Payments 110,000 110,000 110,000 110,000 110,000 110,000 110,000 110,000 880,000
Correct!
Decrease in Balance 110,000 56,447 62,092 68,301 75,131 82,644 90,911 100,000 645,526
Correct!
53,553 47,908 41,699 34,869 27,356 19,089 10,000 234,474

Correct!
Outstanding Balance 645,526 535,526 479,079 416,987 348,686 273,555 190,911 100,000 -
Requirement 4: Effective interest rate for Bidwell Leasing Amount to be recovered (fair market value) Costs to complete lease transaction Net investment Rent payment at the beginning of each of the next 8 years Present value table value (computed) New effective rate (lookup from present value table)
Correct!
$ $ $
645,526 18,099 663,625

Correct!
110,000 6.03296 9%
Requirement 5: BIDWELL LEASING Lease Amortization Schedule Effective Interest 9%
Dec. 31 2011 2011 1012 2013 2014 2015 2016 2017
Payments 110,000 110,000 110,000 110,000 110,000 110,000 110,000 110,000 880,000
Correct!
Decrease in Balance 110,000 60,174 65,589 71,492 77,927 84,940 92,585 100,918 663,625
Correct!
49,826 44,411 38,508 32,073 25,060 17,415 9,082 216,375

Correct!
Outstanding Balance 663,625 553,625 493,451 427,862 356,370 278,443 193,503 100,918 -
Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-18 Requirement 6: Journal entries on December 31, 2011 General Journal Account Red Baron Flying Club (Lessee) Interest expense Lease payable Cash Depreciation expense Accumulated depreciation Bidwell Leasing (Lessor) Cash Lease receivable Interest revenue Debit 53,553 56,447 110,000 80,691 80,691
Credit
110,000 60,174 49,826
- Correct!
Requirement 7: Journal entries on December 31, 2015 General Journal Account Red Baron Flying Club (Lessee) Interest expense Lease payable Cash Depreciation expense Accumulated depreciation Bidwell Leasing (Lessor) Cash Lease receivable Interest revenue Debit 10,000 100,000 110,000 80,691 80,691
Credit
110,000 100,918 9,082
- Correct!
Given Data P15-18: BIDWELL LEASING Purchase at fair value Term of lease Annual payments Implicit interest rate Estimated useful life Incremental borrowing rate Cost of transaction $ $ 645,526 8 years 110,000 10% 8 years 11% 18,099

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Student Name: Instructor Class: McGraw-Hill/Irwin Problem 15-08 RHONE-METRO INDUSTRIES Annual Lease Payments Requirement 1: Lessor's Calculation

365,760 (17,075) 348,685 100,000

348,685 17,075 365,760

365,760 365,760 100,000 100,000

Dec. 31 2011 2011 2012 2013 2014 2015

Payments 100,000 100,000 100,000 100,000 25,000 425,000

Decrease in Balance 100,000 73,424 80,766 88,843 22,727 365,760

26,576 19,234 11,157 2,273 59,240

Outstanding Balance 365,760 265,760 192,336 111,570 22,727 -

100,000 73,424 26,576

1,500 23,500 22,727 2,273

365,760 (17,075) 348,685 100,000 4,000 104,000

Fair value minus : Carrying value Dealer's profit

365,760 (300,000) 65,760

282,925 348,685 300,000 104,000 4,000 100,000

Requirement 4: Lease Amortization Schedule Effective Interest 10%

Dec. 31 2011 2011 2012 2013 2014

Payments 100,000 100,000 100,000 100,000 400,000

Decrease in Balance 100,000 75,131 82,645 90,909 348,685

24,869 17,355 9,091 51,315

Outstanding Balance 348,685 248,685 173,554 90,909 -

Lessor Amortization Schedule Effective Interest 10%

Dec. 31 2011 2011 2012 2013 2014 2015

Payments 100,000 100,000 100,000 100,000 25,000 425,000

Decrease in Balance 100,000 73,424 80,766 88,843 22,727 365,760

26,576 19,234 11,157 2,273 59,240

Outstanding Balance 365,760 265,760 192,336 111,570 22,727 -

Payable Lease receivable Interest revenue

4,000 73,424 26,576

1,500 23,500 22,727 2,273

26,427 (4,736) 21,691 3,000

26,427 25,000 26,427 25,000 3,000 3,000

703 634 563 490 415 337 257 174 3,573

3,000 2,297 703

6,000 5,826 174

645,526 645,526 18,099 18,099 110,000 110,000

Dec. 31 2011 2011 1012 2013 2014 2015 2016 2017

53,553 47,908 41,699 34,869 27,356 19,089 10,000 234,474

645,526 18,099 663,625

Requirement 5: BIDWELL LEASING Lease Amortization Schedule Effective Interest 9%

Dec. 31 2011 2011 1012 2013 2014 2015 2016 2017

49,826 44,411 38,508 32,073 25,060 17,415 9,082 216,375

110,000 60,174 49,826

110,000 100,918 9,082

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