Reference no: EM133091040
Question - On January 1, 2020, Fargo Corp. enters into a ten-year non-cancellable lease with Wells Ltd. for equipment having an estimated useful life of 11 years and a fair value of $ 6,000,000. Fargo's incremental borrowing rate is 8%, but they do not know Wells' implicit rate. Fargo uses the straight-line method to depreciate assets. The lease contains the following provisions:
1. Semi-annual lease payments of $ 438,000 (including $ 38,000 for property taxes), payable on January 1 and July 1 of each year.
2. A guarantee by Fargo Corp. that Wells Ltd. will realize $ 200,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $ 120,000.
Both companies adhere to ASPE.
Required -
a) Calculate the undiscounted minimum lease payments over the life of the lease.
b) Calculate the present value of the minimum lease payments. PV factor for annuity due of 20 semi-annual payments at 8% annual rate, 14.13394; PV factor for $ 1 due in 20 interest periods at 8% annual rate, .45639. Round to nearest dollar.
c) What kind of lease is this to Fargo Corp.? Why?
d) Present the journal entries that Fargo would record during the first year of the lease. Include an amortization schedule through January 1, 2021 and round values to the nearest dollar.
|
Understanding of from management perspective
: What is the purpose of diagramming a process and why is it important to have an understanding of this from a management perspective?
|
|
Calculate the present value of the minimum lease payments
: Calculate the present value of the minimum lease payments. PV factor for annuity due of 20 semi-annual payments at 8% annual rate, 14.13394
|
|
Qualifies for workers compensation due to health issues
: Determine what the company's options are and whether Charlie qualifies for workers' compensation due to his health issues.
|
|
What is the book value of the equipment at january
: Baggins Corporation purchased equipment on January 1, 2019 for $750,000, What is the book value of the equipment at January 1, 2022
|
|
Present the journal entries that fargo would record
: Present the journal entries that Fargo would record during the first year of the lease. Include an amortization schedule through January 1, 2021
|
|
What is the rate of return on the stock
: Question - If the current price of stock is $25, current dividend is $1, and the growth rate and dividend is 2%, what is the rate of return on the stock
|
|
Job satisfaction and knowledge sharing
: Review the article "Job Satisfaction and Knowledge Sharing: identify the elements of the quantitative research processes used in this study.
|
|
What is megan net worth at the end of the year
: She has a mortgage of $100,000 and her monthly mortgage payments are $2,000. What is Megan's Net Worth at the end of the year, December 2021
|
|
What is the cca of this project in the second year
: ABC company plans to introduce a newline of basketball shoes. Tax rate is 34%, and discount rate is 12%. What is the CCA of this project in the second year
|