Chapter 21 Homework 21-1 Plaza Company signed a 20-month lease on October 1, 20x1 for a copier machine from Lopez Office Supplies. The lease payments are $400 per month, beginning October 1, 20x 1. Plaza Company is unaware of the implicit rate used by Lopez in determining the lease payments, but has an incremental borrowing rate of 8%. The copier has a cash purchase price of $20,000 and an economie life of 5 years. The machine reverts to Lopez at the end of the lease term and there are no purchase options. Instructions (a) What type of lease is this for the lessee? Lessor? Explain. (b) Prepare an amortization schedule for the 20 payments. (e) Prepare all necessary joumal entries under GAAP for Plaza for this lease through January 1, 20x2. (d) Repeat (c) under IFRS. (e) What is Lopez's monthly income on the lease? 21-2 On March 1.20x1. Adams Corporation signed a 5-year noncancelable lease for a machine. The machine has a sales value of $45,000 and an estimated useful life of 7 years. The terms of the lease called for Adams to make annual payments of $9.968 each year, starting March 1, 20x1. Although the machine has a guaranteed 55,000 residual value at the end of the lease, Adams believes its actual residual value at that time will only be $2,000. The machine reverts back to the lessor at the end of the lease term. Adams incurred S500 in legal fees to finalize the lease contract. Adams's incremental borrowing rate is 10%, but the Lessor's implicit rate is unknown (Adams doesn't know if or how much executory costs are contained in the lease payments). Both firms have a calendar year. Instructions (a) What kind of lease is this to Adams? (b) Prepare an amortization schedule for Adams related to the lease. (c) Prepare all necessary journal entries for Adams for this lease through March 1, 20x2. (d) Prepare the journal entry for Adams at the termination of the lease assuming the actual residual value at that time is $4,000. Chapter 21 Homework 21-1 Plaza Company signed a 20-month lease on October 1, 20x1 for a copier machine from Lopez Office Supplies. The lease payments are $400 per month, beginning October 1, 20x 1. Plaza Company is unaware of the implicit rate used by Lopez in determining the lease payments, but has an incremental borrowing rate of 8%. The copier has a cash purchase price of $20,000 and an economie life of 5 years. The machine reverts to Lopez at the end of the lease term and there are no purchase options. Instructions (a) What type of lease is this for the lessee? Lessor? Explain. (b) Prepare an amortization schedule for the 20 payments. (e) Prepare all necessary joumal entries under GAAP for Plaza for this lease through January 1, 20x2. (d) Repeat (c) under IFRS. (e) What is Lopez's monthly income on the lease? 21-2 On March 1.20x1. Adams Corporation signed a 5-year noncancelable lease for a machine. The machine has a sales value of $45,000 and an estimated useful life of 7 years. The terms of the lease called for Adams to make annual payments of $9.968 each year, starting March 1, 20x1. Although the machine has a guaranteed 55,000 residual value at the end of the lease, Adams believes its actual residual value at that time will only be $2,000. The machine reverts back to the lessor at the end of the lease term. Adams incurred S500 in legal fees to finalize the lease contract. Adams's incremental borrowing rate is 10%, but the Lessor's implicit rate is unknown (Adams doesn't know if or how much executory costs are contained in the lease payments). Both firms have a calendar year. Instructions (a) What kind of lease is this to Adams? (b) Prepare an amortization schedule for Adams related to the lease. (c) Prepare all necessary journal entries for Adams for this lease through March 1, 20x2. (d) Prepare the journal entry for Adams at the termination of the lease assuming the actual residual value at that time is $4,000
