Question: Winston Industries and Ewing SA enter into an agreement that requires Ewing to lease three...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/664f939b2a8a6_162664f939a95296.jpg)
Transcribed Image Text:
Question: Winston Industries and Ewing SA enter into an agreement that requires Ewing to lease three diesel-electric engines to Winston. Winston has agreed to lease them for a period of 10 years. The lease is non-cancelable, becomes effective on January 1, 2023, and requires equal annual rental payments to be made on each January 1, starting January 1, 2023. The implicit interest rate used by Ewing is 6% and unknown to Winston. Winston's incremental borrowing rate is 8%. The total cost of building the three engines is 2,600,000. The fair value and the economic life of the engines at the commencement of the lease are estimated to be 3,000,000 and 10 years, respectively, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is probable. Required: (Round all amounts to the nearest pound.) (a) Compute the amount of the annual lease payment that is required by the lessor and discuss the nature of this lease transaction to the lessor. (b) Compute the initial value of the lease liability to the lessee. (c) Prepare the journal entries Winston would make in 2023 and 2024 related to the lease arrangement. (Prepare a lease amortization schedule for the first 2 years.) (d) Prepare the journal entries Ewing would make in 2023 and 2024 related to the lease arrangement. (Prepare a lease amortization schedule for the first 2 years.) (e) Assume that Winston incurs legal fees related to the execution of the lease of 30,000. In addition, assume Winston receives a lease incentive from Ewing of 20,000 to enter the lease. Compute the value of the lease liability and the value of the Right-of-Use asset to the lessee at the commencement of the lease. Question: Winston Industries and Ewing SA enter into an agreement that requires Ewing to lease three diesel-electric engines to Winston. Winston has agreed to lease them for a period of 10 years. The lease is non-cancelable, becomes effective on January 1, 2023, and requires equal annual rental payments to be made on each January 1, starting January 1, 2023. The implicit interest rate used by Ewing is 6% and unknown to Winston. Winston's incremental borrowing rate is 8%. The total cost of building the three engines is 2,600,000. The fair value and the economic life of the engines at the commencement of the lease are estimated to be 3,000,000 and 10 years, respectively, with residual value set at zero. Winston depreciates similar equipment on a straight-line basis. At the end of the lease, Winston assumes title to the engines. Collectibility of the lease payments is probable. Required: (Round all amounts to the nearest pound.) (a) Compute the amount of the annual lease payment that is required by the lessor and discuss the nature of this lease transaction to the lessor. (b) Compute the initial value of the lease liability to the lessee. (c) Prepare the journal entries Winston would make in 2023 and 2024 related to the lease arrangement. (Prepare a lease amortization schedule for the first 2 years.) (d) Prepare the journal entries Ewing would make in 2023 and 2024 related to the lease arrangement. (Prepare a lease amortization schedule for the first 2 years.) (e) Assume that Winston incurs legal fees related to the execution of the lease of 30,000. In addition, assume Winston receives a lease incentive from Ewing of 20,000 to enter the lease. Compute the value of the lease liability and the value of the Right-of-Use asset to the lessee at the commencement of the lease.
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Which of the following statements is true aboutschizophrenia? a. People throughout the world suffer fromschizophrenia b. The symptoms associated with schizophrenia are the sameacross cultures c....
-
Give several examples of situations in which it would be better to take a census of the population rather than a sample.
-
Which of the following control functions is most likely to be performed by the DA rather than the DBA? a. Ensuring that neither a program nor a procedure could destroy the correspondence between the...
-
Colgate-Palmolive sells its products in many countries throughout the world. How would you expect its marketing strategy to differ in various countries, compared with that in the United States?...
-
Why are budgets crucial in accounting for governmental entities? If appropriations were not included in fund accounting, what impact would this exclusion have on the financial statements?
-
Jimbob Co . is considering two alternatives to replace some existing manufacturing equipment. The following data have been gathered concerning these two alternatives: Machine A Machine B Purchase...
-
An office has a no tolerance sexual harassment policy that includes inclusivity of employees who identify as LGBTQ . Which of the following would most likely NOT violate the policy?
-
1.For Zenith Co. the Processing Division sells a computer module to the company's Assembly Division, which assembles the finished product.The Microprocessor Division is currently working at capacity....
-
I. The company "EVERYTHING FRESH EXCEPT THE CHICKEN" buys birds to process and distribute them for human consumption. From the process of these birds 3 products "breasts, thighs and wings" are...
-
What is the decimal value of this 8-bit two's complement number? 1000 0000
-
Direct Disk Drive Company operates a computer disk manufacturing plant. Direct materials are added at the end of the process. The following data were for June2017: Work in process, beginning...
-
You are the director of health information management at an acute care hospital. The hospital's radiology manager has come to you because an employee mistakenly included protected health information...
-
The Optimal solution in a transportation problem occurs when __________. total transportation costs are at a break-even point for the problem transportation cost equal warehousing cost the total...
-
Which of the ocean zones shown would be home to each of the following organisms: lobster, coral, mussel, porpoise, and dragonfish? For those organisms you identify as living in the pelagic...
-
48. The City of Wolfe bought a $20,000 machine with a five-year life and no salvage value for its school system. It was capitalized but no other entries were ever made. The machine was monitored...
-
47. The city has a landfill that has been recorded within its parks. The landfill generated program revenues of $4,000 in Year 4 and cash expenses of $15,000. It also paid $3,000 cash for a piece of...
-
49. A police department leases a car on July 1, Year 1, with five annual payments of$20,000 each. It imme diately makes the first payment, and the present value of the annuity due is $78,000 based on...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App