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1. At the beginning of 2011, VHF Industries acquir...

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1. At the beginning of 2011, VHF Industries acquired a machine with a fair value of $4,963,913 by signing a four-year lease. The lease is payable in four annual payments of $1.6 million at the end of each year. (Use Table 4) Required: (1) What is the effective rate of interest implicit in the agreement? (Round "PV Factor" to 5 decimal places. Round your answer to the nearest whole percent. Omit the "%" sign in your response.) The implicit interest rate (2) Prepare the lessee?s journal entry at the inception of the lease. (Enter your answers in dollars not in millions. Omit the "$" sign in your response.) General Journal Debit Credit (Click to select)Sales revenueLease payableInterest payableCashLease receivableInterest revenueLeased assetInterest expense (Click to select)Sales revenueLease payableCashLeased assetInterest expenseInterest payableLease receivableInterest revenue -------------------------------------------------------------------------------- (3) Prepare the journal entry to record the first lease payment at December 31, 2011. (Enter your answers in dollars not in millions. Round "PV Factor" to 5 decimal places. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.) General Journal Debit Credit (Click to select)Interest revenueLeased assetLease payableInterest payableCashSales revenueInterest expenseLease receivable (Click to select)Interest revenueInterest expenseCashSales revenueInterest payableLease payableLeased assetLease receivable (Click to select)Interest expenseSales revenueInterest payableLease payableInterest revenueCashLease receivableLeased asset -------------------------------------------------------------------------------- (4) Prepare the journal entry to record the second lease payment at December 31, 2012. (Enter your answers in dollars not in millions. Round "PV Factor" to 5 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.) General Journal Debit Credit (Click to select)Lease receivableInterest revenueLeased assetInterest payableSales revenueInterest expenseCashLease payable (Click to select)Interest payableSales revenueLeased assetCashInterest expenseInterest revenueLease payableLease receivable (Click to select)Interest expenseLease receivableInterest payableInterest revenueSales revenueLease payableCashLeased asset -------------------------------------------------------------------------------- (5) Suppose the fair value of the machine and the lessor?s implicit rate were unknown at the time of the lease, but that the lessee?s incremental borrowing rate of interest for notes of similar risk was 10%. Prepare the lessee?s entry at the inception of the lease. (Enter your answers in dollars not in millions. Round PV factors to 5 decimal places and final answers to the nearest dollar amount. Omit the "$" sign in your response.) General Journal Debit Credit (Click to select)Interest expenseLease receivableInterest revenueLease payableCashInterest payableLeased assetSales revenue (Click to select)Interest revenueLease payableSales revenueInterest expenseLease receivableInterest payableCashLeased asset -------------------------------------------------------------------------------- 2. On January 1, 2011, National Insulation Corporation (NIC) leased office space under a capital lease. Lease payments are made annually. Title does not transfer to the lessee and there is no bargain purchase option. Portions of the lessee's lease amortization schedule appear below: Jan. 1 Payments Effective Interest Decrease in Balance Outstanding Balance 2011 164,407 2011 17,000 17,000 147,407 2012 17,000 14,741 2,259 145,148 2013 17,000 14,515 2,485 142,663 2014 17,000 14,266 2,734 139,929 2015 17,000 13,993 3,007 136,922 2016 17,000 13,692 3,308 133,614 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 2028 17,000 6,619 10,381 55,804 2029 17,000 5,580 11,420 44,384 2030 17,000 4,438 12,562 31,822 2031 35,000 3,178 31,822 0 -------------------------------------------------------------------------------- Required: (1) What is NIC?s lease liability at the inception of the lease (after the first payment)? (Omit the "$" sign in your response.) Lease liability $ (2) What amount would NIC record as a leased asset? (Omit the "$" sign in your response.) Leased asset $ (3) What is the lease term in years? Lease term years (4) What is the asset?s residual value expected at the end of the lease term? (Omit the "$" sign in your response.) Asset's residual value $ (5) How much of the residual value is guaranteed by the lessee? (Omit the "$" sign in your response.) Residual value $ (6) What is the effective annual interest rate? (Round your answer to the nearest whole percent. Omit the "%" sign in your response.) Effective annual interest rate % (7) What is the total amount of minimum lease payments? (Omit the "$" sign in your response.) Total amount of minimum lease payments $ (8) What is the total effective interest expense recorded over the term of the lease? (Omit the "$" sign in your response.) Total effective interest expense $ Check My WorkeBook Links (4)References Worksheet Learning Objective: 15-05 Describe and demonstrate how both the lessee and lessor account for a capital lease. Learning Objective: 15-08 Explain how lease accounting is affected by the residual value of a leased asset.

 

Paper#10997 | Written in 18-Jul-2015

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