Prepare the lease payments schedule for the Moose Ltd. Prepare the journal entries in the books of Moose Ltd for 1 July 2022 and for 30 June 2023. Prepare the lease receipts schedule for the Wolf Ltd.
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On 1 July 2022, Moose Ltd leased a plastic-moulding machine from Wolf Ltd. On 1 July 2022 the machine was in the records of Wolf Ltd at its fair value of $75 000. The lease agreement contained the following provisions.
|
Lease term |
4 years |
|
Annual rental payment, in advance on 1 July each year |
$20 750 |
|
Residual value at end of the lease term |
$7 000 |
|
Residual guaranteed by lessee |
$4 000 |
|
Interest rate implicit in lease |
8% |
The machine will be depreciated by Moose Ltd on a straight-line basis. The expected useful life of the machine is 5 years. Moose Ltd intends to return the machine to the Wolf Ltd at the end of the lease term. The lease has been classified as a finance lease by Wolf Ltd.
Included in the annual rental payment is an amount of $750 to cover the costs of maintenance and insurance paid for by the lessor. Initial direct costs for setting up the lease were incurred by both parties: $1 518 for Moose Ltd and $1 687 for Wolf Ltd.
Required:
- Prepare the lease payments schedule for the Moose Ltd.
- Prepare the
journal entries in the books of Moose Ltd for 1 July 2022 and for 30 June 2023. - Prepare the lease receipts schedule for the Wolf Ltd.
- Prepare the journal entries in the books of Wolf Ltd for 1 July 2022 and for 30 June 2023.
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- Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
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