How should the lease be classified by branch motors

Reference no: EM132749506

Question: On December 31, 2018, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $36,000 for the truck. Its retail value is $49,355.

The lease agreement specified annual payments of $13,000 beginning December 31, 2018, the beginning of the lease, and at each December 31 through 2021. Branch Motors' interest rate for determining payments was 10%. At the end of the four-year lease term (December 31, 2022) the truck was expected to be worth $11,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line amortization or depreciation.

Yard Art guaranteed a residual value of $7,000. Yard Art's incremental borrowing rate is 7% and is unaware of Branch's implicit rate.

A $1,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expedient, Branch Motors agreed to pay this fee. It is, however, reflected in the $13,000 lease payments. (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.)

Required: 1. How should this lease be classified by Yard Art Landscaping (the lessee)?

2. Calculate the amount Yard Art Landscaping would record as a right-of-use asset and a lease liability.

3. How should this lease be classified by Branch Motors (the lessor)?

4. Show how Branch Motors calculated the $13,000 annual lease payments.

5. Calculate the amount Branch Motors would record as sales revenue.

6. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2018.

7. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Yard Art.

8. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Branch Motors.

9. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2019.

10. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2021 (the final lease payment).

11. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2022 (the end of the lease term), assuming the truck is returned to the lessor and the actual residual value of the truck was $5,000 on that date.

Reference no: EM132749506

Questions Cloud

Should ligaya management proceed with capital structure : LIGAYA, which has no current debt, has a beta of 0.95 for its ordinary shares. Management is considering a change in the capital structure to 30 percent debt.

What is the required rate of return for a firm : What is the required rate of return for a firm with a beta of 1.35 when market return premium is 14% and the risk free rate is 5%.

What is the cost of the merchandise destroyed by fire : The CEBU BRANCH of MOCHI Company is billed for merchandise by the home office at 20 percent (20%) above cost. The branch in turn prices merchandise for sale.

What is the amount of his basis in the equipment received : Franco owns a 60% interest in the Dulera LLC. On December 31 of the current tax year, his basis in the LLC interest is $274,400. The fair market value of the.

How should the lease be classified by branch motors : Calculate the amount Yard Art Landscaping would record as a right-of-use asset and a lease liability. How should this lease be classified by Branch Motors?

Prepare journal entry to record the warranty repairs : On December 20, 2017, The Net Department Store sold a computer for $3,500 with a one-year warranty that covers parts and labour. Warranty expense was estimated.

How statements are formed by strategic management process : Read "The significance of vision and mission development for enterprises in Slovak Republic." Consider how these statements are formed by the strategic.

What is the most important piece of information : What is the most important piece of information to consider when determining effectiveness? Why? The response must be typed, double spaced.

Discuss the applicable legal principles : Discuss the defence(s) that will be raised by Topical Inc. and the likelihood of success. Be certain to discuss the applicable legal principles in detail.

User Account

All Pages