Reference no: EM132811398
Problem 1: Waterworld Company leased equipment from Costner Company, beginning on December 31, 2018. The lease term is 4 years and requires equal rental payments of $41,933 at the beginning of each year, starting on the commencement date December 31, 2018. The equipment has a fair value at the inception of the lease of $150,000, an estimated useful life of 4 years, and no salvage value. The appropriate interest rate is 8%. What is/are journal entry(ies) in 2019?
a) Debit Right-of-Use Asset 150,000, and Credit Lease Liability 150,000
b) Debit Lease Liability 40,933, and Credit Cash 40,933
c) Debit Depreciation Expense 37,500, and Credit Right-of-Use Asset 37,500
d) Debit Interest Expense 8,645 and Lease Liability 33,288, and Credit Cash 41,933
Problem 2: Waterworld Company leased equipment from Costner Company, beginning on December 31, 2018. The lease term is 4 years and requires equal rental payments of $41,933 at the beginning of each year, starting on the commencement date December 31, 2018. The equipment has a fair value at the inception of the lease of $150,000, an estimated useful life of 4 years, and no salvage value. The appropriate interest rate is 8%. What is/are journal entry(ies) in 2020?
a) Debit Right-of-Use Asset 150,000, and Credit Lease Liability 150,000
b) Debit Lease Liability 40,933, and Credit Cash 40,933
c) Debit Depreciation Expense 37,000, and Credit Right-of-Use Asset 37,000
d) Debit Interest Expense 8,645 and Lease Liability 33,288, and Credit Cash 41,933
Problem 3: Cardinal Ltd. is negotiating to lease a piece of equipment to MTBA plc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Cardinal wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only £2,500 at the end of the lease term. If the fair value of the equipment at lease commencement is £70,000, what would be the amount of the annual rental payments Cardinal demands of MTBA, assuming each payment will be made at the beginning of each year and Cardinal wishes to earn a rate of return on the lease of 8%? (Present value of 1 for 4 periods at 6% and Present value of an ordinary annuity for 4 periods at 6%.)
a) £47,000
b) £23,763
c) £23,237
d) £6,706