List Of Accounts
Problem 20-5
| Accounts Payable Accounts Receivable Accumulated Depreciation - Leased Buildings Accumulated Depreciation - Buildings Accumulated Depreciation - Leased Equipment Accumulated Depreciation - Rental Equipment Accumulated Depreciation - Right-of-Use Asset Accumulated Depreciation - Software under Lease Accumulated Depreciation - Vehicles Accumulated Depreciation - Vehicles under Lease Amortization Expense Buildings Buildings under Lease Cash Cost of Goods Sold Deferred Profit on Sale-Leaseback Depreciation Expense Equipment Equipment Acquired for Lessee Equipment under Lease Insurance Expense Insurance Payable Insurance Revenue Interest Expense Interest Income Interest Payable Interest Receivable Inventory Land Rental Expense Land under Lease Lease Liability Lease Receivable Legal Expense Loss on Lease Low Value Lease Expense No Entry Obligations under Lease Operating Expenses Prepaid Expenses Prepaid Insurance Prepaid Rent Property Tax Expense Rent Expense Rental Equipment Rent Payable Rent Receivable Rent Revenue Repairs and Maintenance Expense Right-of-Use Asset Sales Revenue Selling Expenses Short-Term Lease Expense Software under Lease Unearned Interest Income Unearned Rent Revenue Vehicles Vehicles under Lease |
Problem 20-5 Sheffield Manufacturing Ltd. agrees to lease equipment to Martinez Lte. on July 15, 2020. Sheffield follows ASPE and Martinez is a public company following IFRS 16. The following information relates to the lease agreement. 1. Nm 3. 4. 5. The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years. The equipment's cost is $402,000 and the asset's fair value on July 15, 2020, is $584,700. At the end of the lease term, a payment to Sheffield, the lessor, in the amount of $87,000 is expected to be payable by Martinez, the lessee, under a residual value guarantee. Martinez depreciates all of its equipment on a straight-line basis. The lease agreement requires equal annual rental payments beginning on July 15, 2020. Sheffield usually sells its equipment to customers who buy the product outright, but Martinez was unable to get acceptable financing for a cash purchase. Sheffield's credit investigation on Martinez revealed that the company's financial situation was deteriorating. Because Martinez had been a good customer many years ago, Sheffield agreed to enter into this lease agreement, but used a higher-than-usual 12% interest rate in setting the lease payments. Martinez is aware of this rate. Sheffield is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Martinez has agreed to pay all executory costs directly to third parties. Sheffield incurred legal costs of $2,500 in early July 2020 in finalizing the lease agreement. 6. 7. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Identify the nature of this lease for both the lessee and the lessor. The nature of the lease Martinez Lte. Sheffield Manufacturing Ltd. SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of the annual rental payment that is required to obtain a return of 12% for Sheffield. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Annual rental payment 77524 Prepare the journal entries that Martinez would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and that it does not use reversing entries. (Credit account titles are automatically indented when the 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 answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit July 15, 2020 lease Dec. 31, 2020 (To record depreciation expense.) Dec. 31, 2020 (To record interest.) July 15, 2021 (To record lease payment.) Dec. 31, 2021 (To record depreciation expense.) Dec. 31, 2021 (To record interest.) From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Martinez's December 31, 2020 statement of financial position and statement of income, and where each amount would be reported. Statement of financial position: Martinez Statement of Income: SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT Prepare the journal entries that Sheffield would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation July 15, 2020 Lease Liability Cash (To record rental equipment.) July 15, 2020 (To record collection of rent.) July 15, 2020 (To record legal expense.) Dec. 31, 2020 (To record rent.) Dec. 31, 2020 Depreciation Expense Accumulated Depreciation (To record depreciation expense.) July 15, 2021 (To record rent.) July 15, 2021 (To record collection of rent.) Dec. 31, 2021 (To record depreciation expense.) Dec. 31, 2021 (To record rent.) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Sheffield's December 31, 2020 statement of financial position and statement of income, and where each amount would be reported. Statement of financial position: Sheffield Statement of Income: Problem 20-5 Sheffield Manufacturing Ltd. agrees to lease equipment to Martinez Lte. on July 15, 2020. Sheffield follows ASPE and Martinez is a public company following IFRS 16. The following information relates to the lease agreement. 1. Nm 3. 4. 5. The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years. The equipment's cost is $402,000 and the asset's fair value on July 15, 2020, is $584,700. At the end of the lease term, a payment to Sheffield, the lessor, in the amount of $87,000 is expected to be payable by Martinez, the lessee, under a residual value guarantee. Martinez depreciates all of its equipment on a straight-line basis. The lease agreement requires equal annual rental payments beginning on July 15, 2020. Sheffield usually sells its equipment to customers who buy the product outright, but Martinez was unable to get acceptable financing for a cash purchase. Sheffield's credit investigation on Martinez revealed that the company's financial situation was deteriorating. Because Martinez had been a good customer many years ago, Sheffield agreed to enter into this lease agreement, but used a higher-than-usual 12% interest rate in setting the lease payments. Martinez is aware of this rate. Sheffield is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Martinez has agreed to pay all executory costs directly to third parties. Sheffield incurred legal costs of $2,500 in early July 2020 in finalizing the lease agreement. 6. 7. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Identify the nature of this lease for both the lessee and the lessor. The nature of the lease Martinez Lte. Sheffield Manufacturing Ltd. SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of the annual rental payment that is required to obtain a return of 12% for Sheffield. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Annual rental payment 77524 Prepare the journal entries that Martinez would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and that it does not use reversing entries. (Credit account titles are automatically indented when the 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 answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit July 15, 2020 lease Dec. 31, 2020 (To record depreciation expense.) Dec. 31, 2020 (To record interest.) July 15, 2021 (To record lease payment.) Dec. 31, 2021 (To record depreciation expense.) Dec. 31, 2021 (To record interest.) From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Martinez's December 31, 2020 statement of financial position and statement of income, and where each amount would be reported. Statement of financial position: Martinez Statement of Income: SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT Prepare the journal entries that Sheffield would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation July 15, 2020 Lease Liability Cash (To record rental equipment.) July 15, 2020 (To record collection of rent.) July 15, 2020 (To record legal expense.) Dec. 31, 2020 (To record rent.) Dec. 31, 2020 Depreciation Expense Accumulated Depreciation (To record depreciation expense.) July 15, 2021 (To record rent.) July 15, 2021 (To record collection of rent.) Dec. 31, 2021 (To record depreciation expense.) Dec. 31, 2021 (To record rent.) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Sheffield's December 31, 2020 statement of financial position and statement of income, and where each amount would be reported. Statement of financial position: Sheffield Statement of Income
