ACCT 306 WEEK 8 HOMEWORK

Exercise 15-5 (Algo) Sales-type lease; lessor; balance sheet and income statement effects [LO15-3]

On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from Builders, Incorporated The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $604,355 over a 5-year lease term (also the asset’s useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic’s incremental borrowing rate is 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $4.4 million.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:

  1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) on June 30, 2024.
  2. What amount related to the lease would Builders report in its balance sheet on December 31, 2024 (ignore taxes)?
  3. What line item amounts related to the lease would Builders report in its income statement for the year ended December 31, 2024 (ignore taxes)?

Note: For all requirements, enter your answers in whole dollars and not in millions. Round the intermediate calculation and final answers to the nearest whole dollar.

 Exercise 15-7 (Algo) Sales-type lease with no selling profit; lessor [LO15-2]

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2024. Edison purchased the equipment from International Machines at a cost of $110,623.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Related Information:    
Lease term 2 years (8 quarterly periods)
Quarterly rental payments $ 15,300 at the beginning of each period
Economic life of asset 2 years
Fair value of asset $ 110,623  
Implicit interest rate (Also lessee’s incremental borrowing rate) 12%  

Required:

Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2025. Edison’s fiscal year ends December 31.

Exercise 15-8 (Algo) Sales-type lease with selling profit; lessor; calculate lease payments [LO15-3]

Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2024. International Machines manufactured the equipment at a cost of $98,000. Manufacturers Southern’s fiscal year ends December 31.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Related Information:    
Lease term 2 years (8 quarterly periods)
Quarterly rental payments $ 17,000 at the beginning of each period
Economic life of asset 2 years
Fair value of asset $ 124,940  
Implicit interest rate 10%  

Required:

  1. Show how International Machines determined the $17,000 quarterly lease payments.
  2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2024, and the second lease payment on April 1, 2024.

Exercise 15-35 (Algo) Lessor’s initial direct costs; sales-type lease [LO15-3, 15-7]

The lease agreement and related facts indicate the following:

  1. Leased equipment had a retail cash selling price of $470,000. Its useful life was five years with no residual value.
  2. The lease term was five years and the lessor paid $350,000 to acquire the equipment (thus, selling profit).
  3. Lessor’s implicit rate when calculating annual lease payments was 7%.
  4. Annual lease payments beginning January 1, 2024, the beginning of the lease, were $107,130.
  5. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $9,200.

Required:

  1. & 2.Prepare the appropriate entries for the lessor to record the lease and the initial payment at its commencement and any entry(s) necessary on December 31, 2024, the fiscal year-end.

Note: Round your intermediate and final answers to the nearest whole dollar amount. If no entry is required for a transaction/event, select “No journal entry required” in the first account field.

Problem 15-4 (Algo) Finance/sales-type lease; lessee and lessor [LO15-1, 15-2, 15-3]

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,050,000 and leased it to Mid-South Urologists Group, Incorporated, on January 1, 2024.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Lease Description:  
Quarterly lease payments $ 122,913—beginning of each period
Lease term 5 years (20 quarters)
No residual value; no purchase option  
Economic life of lithotripter 5 years
Implicit interest rate and lessee’s incremental borrowing rate 8%
Fair value of asset $ 2,050,000

Required:

  1. How should this lease be classified by Mid-South Urologists Group and by Physicians’ Leasing?
  2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians’ Leasing from the beginning of the lease through the second rental payment on April 1, 2024. Adjusting entries are recorded at the end of each fiscal year (December 31).
  3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2024.