Business, 08.10.2020 09:01, itzzarosario12

Baillie Power leased high-tech electronic equipment from Courtney Leasing on January 1, 2021. Courtney purchased the equipment from Doane Machines at a cost of $250,000, its fair value. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Information:
Lease term 2 years (8 quarterly periods)
Quarterly lease payments $15,000 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter
Economic life of asset 5 years
Interest rate charged by the lessor 8%
Required:
1) Determine the lease type for Baillie Power and explain why.
2) Prepare a lease amortization schedule and appropriate entries for Baillie Power from the beginning of the lease through December 31, 2021. December 31 is the fiscal year end for each company. Appropriate adjusting entries are recorded at the end of each quarter.
3) What will be the effect of the lease on Baillie Power's earnings for the first year (ignore taxes)?
4) What will be the balance in the balance sheet accounts of Baillie Power related to the lease at the end of the first year (ignore taxes)?

Answers: 1

Show answers

Answers

answered: johnisawesome999

1) Determine the lease type for Baillie Power and explain why.

The lease should be treated as an operating lease because:

ownership is not transferred at the end of the leasethe lease term represents only 40% of the asset's useful lifethe present value of the lease agreement is only 45% of the asset's value no bargain purchase option exists

effective interest rate:

1.08 = (1 + r)⁴

⁴√1.08 = ⁴√(1 + r)⁴

1.01943 = (1 + r)

r = 1.943%

we must first determine the present value of the lease payments:

PV = (quarterly payment x annuity factor) + quarterly payment

quarterly payment = $15,000PV annuity factor, 7 periods, 1.943% = 6.48620

PV = ($15,000 x 6.48620) + $15,000 = $112,293

2) Prepare a lease amortization schedule and appropriate entries for Baillie Power from the beginning of the lease through December 31, 2021. December 31 is the fiscal year end for each company. Appropriate adjusting entries are recorded at the end of each quarter.

amortization schedule:

quarter lease payment interest lease liability's carrying value

1 $15,000 $0 $97,293

2 $15,000 $1,890 $84,183

3 $15,000 $1,636 $70,819

4 $15,000 $1,376 $57,195

5 $15,000 $1,111 $43,306

6 $15,000 $841 $29,147

7 $15,000 $566 $14,713

8 $15,000 $287 $0

January 1, 2021, lease equipment from Courtney Leasing

Dr Right of use asset 112,293

Cr Lease liability 112,293

January 1, 2021, first lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 15,000

Cr Right of use asset 15,000

March 31, 2021, second lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 13,110

Cr Right of use asset 13,110

June 30, 2021, third lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 13,364

Cr Right of use asset 13,364

September 30, 2021, fourth lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 13,624

Cr Right of use asset 13,624

December 31, 2021, fifth lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 13,889

Cr Right of use asset 13,889

March 31, 2022, sixth lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 14,159

Cr Right of use asset 14,159

June 30, 2022, seventh lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 14,434

Cr Right of use asset 14,434

September 30, 2022, eighth lease payment

Dr Lease expense 15,000

Cr Cash 15,000

Dr Lease liability 14,713

Cr Right of use asset 14,713

3) What will be the effect of the lease on Baillie Power's earnings for the first year (ignore taxes)?

Operating leases (lease expense + interest expense) decrease the company's income, but they do not represent a depreciation expense (only financial lessees do).

Total lease expenses during year 1 = $15,000 x 5 = $75,000

4) What will be the balance in the balance sheet accounts of Baillie Power related to the lease at the end of the first year (ignore taxes)?

Right of use asset $43,306

Lease liability $43,306

answered: Guest

explanation:

regressive tax taxes the poor and less of the wealthy. this the rich get richer and the poor get more poor. this would create a large wealth gap.

answered: Guest

You can go to the edit profile.

Other questions on the subject: Business

Business, 21.06.2019 21:40, nsuleban9524

Bella is the new president of first edition, a group dedicated to the promotion of english literacy in first-generation immigrant communities. in the two years that have passed since bella took the position, the organization's members have become more passionate about their mission and intensified their activities—they put in long hours teaching children to read, promoting the program to parents, and soliciting donations. bella's strength is in her ability to inspire others and make them believe that they are part of something greater than themselves. which term best captures bella's leadership style? a. transactional b. transformational c. legitimate authority d. absolute authority

Answers: 1

continue

Business, 22.06.2019 00:50, abcdefg87

Consider each of the following cases: case accounting break-even unit price unit variable cost fixed costs depreciation 1 127,400 $ 38 $ 25 $ 711,000 ? 2 124,000 ? 41 2,500,000 $ 900,000 3 5,753 117 ? 171,000 100,000 required: (a) find the depreciation for case 1. (do not round your intermediate calculations.) (b) find the unit price for case 2. (do not round your intermediate calculations.) (c) find the unit variable cost for case 3. (do not round your intermediate calculations.)

Answers: 2

continue

Business, 22.06.2019 07:10, Derienw6586

Walsh company manufactures and sells one product. the following information pertains to each of the company’s first two years of operations: variable costs per unit: manufacturing: direct materials $ 25 direct labor $ 12 variable manufacturing overhead $ 5 variable selling and administrative $ 4 fixed costs per year: fixed manufacturing overhead $ 400,000 fixed selling and administrative expenses $ 60,000 during its first year of operations, walsh produced 50,000 units and sold 40,000 units. during its second year of operations, it produced 40,000 units and sold 50,000 units. the selling price of the company’s product is $83 per unit. required: 1. assume the company uses variable costing: a. compute the unit product cost for year 1 and year 2. b. prepare an income statement for year 1 and year 2. 2. assume the company uses absorption costing: a. compute the unit product cost for year 1 and year 2. b. prepare an income statement for year 1 and year 2. 3. reconcile the difference between variable costing and absorption costing net operating income in year 1.

Answers: 3

continue

Business, 22.06.2019 09:30, cwebb4383

Darlene has a balance of 3980 on a credit card with an apr of 22.8% paying off her balance and which of these lengths of time will result in her paying the least amount of interest?

Answers: 2

continue

Do you know the correct answer?

Baillie Power leased high-tech electronic equipment from Courtney Leasing on January 1, 2021. Courtn...