Reference no: EM132969095
Questions -
Q1. On January 1, 2020, Canon Corp., a lessee, signed a five-year capital lease for new equipment. The lease requires annual payments of $48,000. The first payment is due on December 31, 2020. Canon guaranteed a residual value of $10,000, and estimated a residual value of $10,000 at the end of lease term. On December 31, 2024, Canon returned the asset to the lessor, and the asset was appraised at a value of $7,000. Canon should record which of the following on December 31, 2024?
a. a $3,000 debit to cash
b. a $7,000 credit to leased equipment
c. a $10,000 debit to loss on disposal of leased equipment
d. a $3,000 debit to loss on disposal of leased equipment
Q2. On January 1, 2020, Wilson Co. leases equipment to Nice Inc. The lease term is 48 months, and the rent payment will be $1.800 per month. Wilson (lessor) classifies it as an operating lease. Wilson offers a 6- month rent-holiday. Thus, Nice does not need to make any rent payments for the first 6 months. The first monthly rent at $1.800 will be paid at the beginning of 7th month. Wilson should recognize rent revenue from this lease arrangement for the first quarter on 3/31/2020 at
a. $5,400
b. $6,075.
c. $4,725.
d. $0
Q3. Kenmore Company, a dealer in machinery and equipment, leased equipment to Bothell Inc., on July 1, 2021. The lease is appropriately accounted for as a sales-type lease by Kenmore and as a finance lease Bothell. The lease is for a 10-year period (the useful life of the asset) expiring June 30, 2031. The first of 10 equal annual payments of $828,000 was made on July 1, 2021. Kenmore had purchased the equipment for $5,250,000 on January 1, 2021, and established a list selling price of $7,200,000 on the equipment. Assume that the present value at July 1, 2021, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $6,000,000.
Assuming that Bothell, Inc. uses straight-line amortization, what is the amount of amortization and interest expense that Bothell should record for the year ended December 31, 2021?
a. $300,000 and $206,880
b. $300,000 and $240,000
c. $3,600,000 and $206,880
d. $3,600,000 and $160,000
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