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Brief Exercise 21-6
Your answer is correct.
Assume that IBM leased equipment that was carried at a cost of $148,000 to Sharon Swander
Company. The term of the lease is 5 years beginning January 1, 2017, with equal rental
payments of $34,908 at the beginning of each year. All executory costs are paid by Swander
directly to third parties. The fair value of the equipment at the inception of the lease is $148,000.
The equipment has a useful life of 5 years with no salvage value. The lease has an implicit
interest rate of 9%, no bargain-purchase option, and no transfer of title. Collectibility is
reasonably assured with no additional cost to be incurred by IBM.
Prepare IBM’s January 1, 2017, journal entries at the inception of the lease. (Credit account
titles are automatically indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts.
Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final
answer to 0 decimal places e.g. 58,971 .)
Exercise 21-2
Swifty Company leases an automobile with a fair value of $19,159 from John Simon Motors, Inc., on the following terms:
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Exercise 21-12
Your answer is correct.
1
.
The lease arrangement is for 10 years.
2
.
The leased building cost $4,495,000 and was purchased for cash on January
1, 2017.
3
.
The building is depreciated on a straight-line basis. Its estimated economic life
is 50 years with no salvage value.
4
.
Lease payments are $269,000 per year and are made at the end of the year.
5
.
Property tax expense of $90,200 and insurance expense of $10,800 on the
building were incurred by Marin in the first year. Payment on these two items
was made at the end of the year.
6
.
Both the lessor and the lessee are on a calendar-year basis.
(a) Prepare the journal entries that Marin Co. should make in 2017.
(b) Prepare the journal entries that Headland Inc. should make in 2017
(c) If Marin paid $29,200 to a real estate broker on January 1, 2017, as a fee for finding the
lessee, how much should Marin Co. report as an expense for this item in 2017?
Exercise 21-14
Your answer is correct.
On February 20, 2017, Teal Inc. purchased a machine for $1,402,800 for the purpose of leasing
it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on
the straight-line basis. The machine was leased to Flint Company on March 1, 2017, for a
4-year period at a monthly rental of $19,700. There is no provision for the renewal of the lease
or purchase of the machine by the lessee at the expiration of the lease term. Teal paid $31,680
of commissions associated with negotiating the lease in February 2017.
(a) What expense should Flint Company record as a result of the facts above for the year ended
December 31, 2017?
(b) What income or loss before income taxes should Teal record as a result of the facts above
for the year ended December 31, 2017? (Hint: Amortize commissions over the life of the lease.)
Exercise 21-16
Your answer is correct.
Presented below are four independent situations. (Round answers to 0 decimal places, e.g.
125. If answer is 0, please enter 0. Do not leave any fields blank.)
(a) On December 31, 2017, Bramble Inc. sold computer equipment to Daniell Co. and
immediately leased it back for 10 years. The sales price of the equipment was $515,900, its
carrying amount is $396,200, and its estimated remaining economic life is 12 years. Determine
the amount of deferred revenue to be reported from the sale of the computer equipment on
December 31, 2017
(b) On December 31, 2017, Sunland Co. sold a machine to Cross Co. and simultaneously
leased it back for one year. The sales price of the machine was $480,300, the carrying amount
is $417,300, and it had an estimated remaining useful life of 14 years. The present value of the
rental payments for the one year is $35,000. At December 31, 2017, how much should Sunland
report as deferred revenue from the sale of the machine
(c) On January 1, 2017, Coronado Corp. sold an airplane with an estimated useful life of 10
years. At the same time, Coronado leased back the plane for 10 years. The sales price of the
airplane was $504,900, the carrying amount $381,700, and the annual rental $73,315.
Coronado Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits
depreciation method. How much gain on the sale should be reported at the end of 2017 in the
financial statements
(d) On January 1, 2017, Whispering Co. sold equipment with an estimated useful life of 5 years.
At the same time, Whispering leased back the equipment for 2 years under a lease classified as
an operating lease. The sales price (fair value) of the equipment was $214,800, the carrying
amount is $298,500, the monthly rental under the lease is $5,900, and the present value of the
rental payments is $114,606. For the year ended December 31, 2017, determine which items
would be reported on its income statement for the sale-leaseback transaction
