Discuss the leasing arrangements in given

Assignment Help Accounting Basics

Reference no: EM131884583

Question: a. Discuss the leasing arrangements between Caribbean Cement Company Ltd. and Trinidad Cement Limited.

b. The following facts pertain to the lease agreement between Fenton Company and Goldson Corp. Fenton Company on January 1, 2015, entered into a five-year non-cancelable lease. The lease had four renewal options of one year each, for equipment having an estimated useful life of 10 years and a fair value to the lessor, Goldson Corp., at the inception of the lease of $3,000,000. Fenton's incremental borrowing rate is 8%. Fenton uses the straight-line method to depreciate its assets. The lease contains the following provisions:

Rental payments of $219,000 including $19,000 for property taxes, payable at the beginning of each six-month period.

A termination penalty assuring renewal of the lease for a period of four years after expiration of the initial lease term.

An option allowing the lessor to extend the lease one year beyond the last renewal exercised by the lessee.

A guarantee by Fenton Company that Goldson Corp. will realize $100,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $60,000.

Instructions

(i) What kind of lease is this to Fenton Company?

(ii) What should be considered the lease term?

(iii) What are the minimum lease payments?

(iv) What is the present value of the minimum lease payments?

Reference no: EM131884583

Questions Cloud

How might managerial accounting support the efforts : Think of a business or organization that would use process costing. What type of waste are likely to be generated during the manufacturing process?

Explain the concept of workpiece squaring : Explain the concept of workpiece squaring. Why is squaring important? What is machine zero? Why is it important? What is a burr? Why does it occur?

List and sketch six of the common stock shapes : List and sketch six of the common stock shapes. What is the difference between roughing and finishing machining operations?

Develop a measure of ethical capital for inclusion : Critically discuss whether corporations exist just to make a profit. Discuss whether ethics should be construed as a corporate asset.

Discuss the leasing arrangements in given : The following facts pertain to the lease agreement between Fenton Company and Goldson Corp. Fenton Company on January 1, 2015, entered into a five-year.

List examples of deferred tax liabilities : List examples of Deferred tax liabilities. List examples of deductable temporary differences.

Define processes for developing appropriations budgets : Why is it important that governments coordinate their processes for developing appropriations budgets with those for developing capital budgets?

Define the indian new wave : Difference between directors employing song and dance sequences and directors who do not use song and dance sequences.

How much should gross show in supplies expense account : Gross Company purchased $50,000 worth of office supplies on January 1. Gross expects to use 60 percent of the supplies in the first year and the remainder.

User Account

All Pages