Discuss the nature of this lease to fal company

Assignment Help Accounting Basics
Reference no: EM13683405

I. Teri Inc., in its first year of operations, has the following differences between the book
basis and tax basis of its assets and liabilities at the end of 20x0.

Book Basis Tax Basis

Equipment (net) $400,000 $340,000
Estimated warranty liability $200,000 $ -0-

It is estimated that the warranty liability will be settled in 20x1. The difference in equipment (net) will result in taxable amounts of $20,000 in 20x1, $30,000 in 20x2, and $10,000 in 20x3. The company has taxable income of $520,000 in 20x0. As of the beginning of 20x0, its enacted tax rate is 34% for 20x0-20x2, and 30% for 20x3. Teri expects to report taxable income through 20x3.

a) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 20x0.
b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 20x0 (long-term or current?).


II. The following facts pertain to a noncancelable lease agreement between Shel Company, a lessor and Fal Company, a lessee.

Inception date: 5/1/x1
Annual lease payment on May 1,
beginning with 5/1/x1 $20,987.83
Bargain purchase option at the end of lease term $4,000.00
Lease term 5 years
Economic life of equipment 10 years
Lessor's cost $65,000.00
Fair value of asset at 5/1/x1 $90,000.00
Lessor's implicit rate 10%
Lessee's incremental borrowing rate 10%

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs. Both companies use the straight-line depreciation method.
a) Discuss the nature of this lease to Fal Company. What kind of lease and why?
b) Discuss the nature of this lease to Shel Company. What kind of lease and why?
c) Prepare the journal entries on the lessor's books to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 20x1 and 20x2. Shel's annual accounting period ends on December 31

Reference no: EM13683405

Questions Cloud

Under what conditions would they become ineffective : Once a strong system of internal controls has been established in a firm, what does it take to make them work efficiently? Under what conditions would they become ineffective?
Find how many times louder is the latter sound : The sound level measured in a room by a person watching a movie on a home theater system varies from 45 dB during a quiet part to 65 dB during a loud part. Find how many times louder is the latter sound
Find what minimum diameter is required for the wire : A steel wire of length 1.90 meter with circular cross section must stretch no more than 0.300 centimeter when a tensile (stretching) force of 400 Newton is applied to each end of the wire. Find what minimum diameter is required for the wire
How can coach increase market share between different market : How can Coach increase their profits and revenue and how can Coach increase the market share between different markets?
Discuss the nature of this lease to fal company : Discuss the nature of this lease to Fal Company. What kind of lease and why?
Evaluate what pressure does each leg exert on the floor : A man sits on a four-legged chair with his feet off the floor. The combined mass of the man and chair is 95 kilogram. find what pressure does each leg exert on the floor
Obtain the location of the point where electric field zero : Two charges, -3.5 µC and -4.7 µC, are placed at (-0.55 m, 0) and (0.55 m, 0), correspondingly. Obtain the location of the point where the electric field is zero
Find what voltage drop is required across the wire : A tungsten wire in a vacuum has length 5 centimeter and radius 3 millimeter. A potential difference is applied across it. Find what voltage drop is required across the wire
Find the horizontal component of its velocity at that point : A particle with a mass of 2.5 × 105 kilogram and a charge of +2.8 µC is released in a (parallel plate) uniform horizontal electric field of 11 N/C. Find the horizontal component of its velocity at that point

Reviews

Write a Review

Accounting Basics Questions & Answers

  Assumptions behind transactions and full journal entries

Explain to him the rules of debits and credits for the balance sheet and income statement - journal entry that would be recorded that impacts the balance sheet.

  Why do auditors obtain management representation letters

why do auditors obtain management representation letters from their audit clients at the end of every audit? your

  Tanya fletcher owns undeveloped land adjusted basis of

tanya fletcher owns undeveloped land adjusted basis of 80000 fair market value of 92000 on the east coast. on 010413

  Ginvold co began operating a subsidiary in a foreign

ginvold co. began operating a subsidiary in a foreign country on january 1 2013 by acquiring all of the common stock

  Journalize the april transactions

Journalize the April transactions. (If there is no transaction, enter No entry as the description and 0 for the amount.)

  The management of clare co asks your help in determining

the management of clare co. asks your help in determining the comparative effects of the fifo and lifo inventory cost

  The boston culinary institute is evaluating a classroom

the boston culinary institute is evaluating a classroom remodeling project. the cost of the remodel will be 350000 and

  If the historical cost of product x is 64 the selling price

if the historical cost of product x is 64 the selling price product x is s90 the costs to sell product x are s14 the

  Could you please describes the courses of action the ima

could you please describes the courses of action the ima recommendsin resolving ethical conflict? other than what is

  In its first four years of operations ending december 31

in its first four years of operations ending december 31 year 4 alder inc.s depreciation for income tax purposes

  Make certain to discuss cost allocations for

how are cost allocations utilized in the management of the organization. make certain to discuss cost allocations for

  The topic for your research is based on current literature

the topic for your research is based on current literature and you are to identify the basic provisions of the

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd