Prepare a lease amortization schedule for two years

Reference no: EM131989031

Problem

Swifty Industries and Nash Inc. enter into an agreement that requires Nash Inc. to build three diesel-electric engines to Swifty's specifications. Upon completion of the engines, Swifty has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2017, and requires annual rental payments of $412,338 each January 1, starting January 1, 2017. Swifty's incremental borrowing rate is 11%. The implicit interest rate used by Nash Inc. and known to Swifty is 10%. The total cost of building the three engines is $2,362,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Swifty depreciates similar equipment on a straight-line basis. At the end of the lease, Swifty assumes title to the engines. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs.

a. Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Swifty Industries.

b. Prepare the journal entry or entries to record the transaction on January 1, 2017, on the books of Nash Inc.

c. Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2017.

d. Prepare a lease amortization schedule for 2 years.

e. Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2017.

f. Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2017, for both the lessee and the lessor.

Reference no: EM131989031

Questions Cloud

Significance level for the goodness of fit test : What if they don't give us a significance level for the goodness of fit test do we choose one?

What can you conclude with these various sets of results : Consistent with the background information provided by the online vendor who has provided the standardised ratings.

What are the drivers of profitability : What are the characteristics of this business? Is it a commodity, high value, or somewhere in between? Is it long cycle or short?

What is the probability that the person has the disease : A person is chosen at random from this population and the tests indicate that this person has the disease. What is the probability that the person.

Prepare a lease amortization schedule for two years : Swifty Industries and Nash Inc. enter into an agreement that requires Nash Inc. Prepare a lease amortization schedule for 2 years.

Formulate margarets production plan : Formulate Margaret's production plan. What should the crop plan be, and what profit will it yield?

One for the main recipe items : You will implement three classes: one for the main recipe items, one for the ingredients that are part of the recipe, and one for the entire collection.

Characteristic polynomial and its roots : Solve the recurrence equation An = An-1+4An-2 +2An-3, for A0 = 1, A1 = 1. A2 = 5 for n >= 3 Follow the steps below.

What information do you need to design an activity plan : Since you are in charge of operating the premises, you must design an activity plan by taking into account the type of competitions that could take place

User Account

All Pages