Financial Leases - Financial Accounting Hi, can you help me out with SCF problem? It doesn't seem
Question:
Financial Leases - Financial Accounting
Hi, can you help me out with SCF problem? It doesn't seem to be much of work, but I am lost how to do it. Thanks in advance!
Coltic Corporation, a December 31 year-end lessee, enters into a lease agreement with the RX Corporation on January 1, 2020 to lease machinery from RX. The lease term is four years and requires payments of $105,000 at the beginning of each of the four years. The $105,000 payment INCLUDES $5,000 of executory costs. The lease contains a bargain purchase option of $15,000. The rate implicit in the lease is known by the lessee to be 10 percent and the lessees incremental borrowing rate is 12%. The fair value of the property is $358,930. The property has an estimated economic life of 5 years. The lessee uses straight-line depreciation for similar owned assets. Assume the salvage value is zero.
Determine the following:
(1) Why is this a finance lease to the lessee? Show ALL criteria that has been met. If this lease did not meet any of the criteria to be classified as a finance lease (but it was still > 1 year), what type of lease would it be? What would be one key accounting difference of this type of lease compared to a finance lease? Could you explain please?
(2) Determine the present value of ALL the minimum lease payments (MLP) and future cash out flows. (Round all calculations to the nearest dollar)
(a) How can you verify that your answer in (2) above is correct? Be clear!
(3) Record all journal entries required for the lease on January 1, 2020.
c) Record all the proper adjusting entries for the lessee at the end of the SECOND year
d) Show all the relevant sections of the 12-31-21 Balance Sheet with respect to this lease. Include account names and dollar amounts
Assets:
Liabilities:
f) Show what accounts and what dollar amounts from this lease would appear on the Income Statement for the year ended 12-31-21.
e) Record the journal entry needed on the lessees books on 1-1-2022.
Transcribed image text: (6) Complete the lessee's amortization schedule below. The company's year-end is December 31. DO NOT INCLUDE EXECUTORY COSTS IN THIS SCHEDULE. ROUND ALL CALCULATIONS TO THE NEAREST DOLLAR! Date Annual Lease Payments Interest Reduction in Lease Liability Lease Liability 1-1-20 1-1-20 1-1-21 1-1-22Expert Answer:
