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    Exercise 21

    Uploaded by

    Ruth Utami
    The document provides information about an operating lease between Secada Co. as the lessor and Ryker Inc. as the lessee. It gives details such as the building cost, lease term, annual lease payments, property taxes, insurance expenses. It then asks to prepare the journal entries for both parties for 2011. For Secada, it records the building acquisition, rental revenue, depreciation expense, property tax and insurance expenses. For Ryker, it records the rent expense. It also asks how much broker fee expense to report in 2011, to which the answer is to capitalize and amortize it over 10 years, so €3,000 for 2011.

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    © All Rights Reserved
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    Exercise 21

    Uploaded by

    Ruth Utami
    878 views3 pages
    The document provides information about an operating lease between Secada Co. as the lessor and Ryker Inc. as the lessee. It gives details such as the building cost, lease term, annual lease payments, property taxes, insurance expenses. It then asks to prepare the journal entries for both parties for 2011. For Secada, it records the building acquisition, rental revenue, depreciation expense, property tax and insurance expenses. For Ryker, it records the rent expense. It also asks how much broker fee expense to report in 2011, to which the answer is to capitalize and amortize it over 10 years, so €3,000 for 2011.

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    accounting

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    The document provides information about an operating lease between Secada Co. as the lessor and Ryker Inc. as the lessee. It gives details such as the building cost, lease term, annual lease payments, property taxes, insurance expenses. It then asks to prepare the journal entries for both parties for 2011. For Secada, it records the building acquisition, rental revenue, depreciation expense, property tax and insurance expenses. For Ryker, it records the rent expense. It also asks how much broker fee expense to report in 2011, to which the answer is to capitalize and amortize it over 10 years, so €3,000 for 2011.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    878 views3 pages

    Exercise 21

    Uploaded by

    Ruth Utami
    The document provides information about an operating lease between Secada Co. as the lessor and Ryker Inc. as the lessee. It gives details such as the building cost, lease term, annual lease payments, property taxes, insurance expenses. It then asks to prepare the journal entries for both parties for 2011. For Secada, it records the building acquisition, rental revenue, depreciation expense, property tax and insurance expenses. For Ryker, it records the rent expense. It also asks how much broker fee expense to report in 2011, to which the answer is to capitalize and amortize it over 10 years, so €3,000 for 2011.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    EXERCISE 21-10 (Computation of Rental, Journal Countries for Lessor)

    Fieval Leassing Company signs an agreement on January 1,2011, to lease equipment to Reid
    Company. The following information relates to the agreement.
    1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an
    estimated economic life og 6 years
    2. the cost and fair value of the asset at January 1, 2010, is £343,000
    3. The asset will revert to the lessor at the end of the lease term, at which time the asset is
    expected to have a residual value of £61,071, none of which is guaranteed
    4. Reid Company assumes direct responsibility for all executor costs
    5. The agreement requires equal annual rental payments, beginning on January 1, 2010

    Instructions

    (a) Fair value of leased asset to lessor £343,000.00


    Less: Present value of unguaranteed
    residual value £61,071 X .56447
    (present value of 1 at 10% for 6 periods) 34,472.75
    Amount to be recovered through lease payments £308,527.25

    Six periodic lease payments £308,527.25 ÷ 4.79079* £ 64,400.00**

    *Present value of annuity due of 1 for 6 periods at 10%.


    **Rounded to the nearest pound.

    (b) FIEVAL LEASING COMPANY (Lessor)


    Lease Amortization Schedule
    Annual Lease
    Interest (10%) on Recovery
    Date Payment Plus Lease Receivable
    Lease Receivable of Lease Receivable
    URV
    1/1/10 - - - £343,000
    1/1/10 £ 64,400 £ 64,400 278,600
    1/1/11 64,400 £ 27,860 36,540 242,060
    1/1/12 64,400 24,206 40,194 201,866
    1/1/13 64,400 20,187 44,213 157,653
    1/1/14 64,400 15,765 48,635 109,018
    1/1/15 64,400 10,902 53,498 55,520
    12/31/15 61,071 5,551 55,520 0
    £447,471 £104,471 £343,000

    (c) 1/1/10 Lease Receivable 343,000


    Equipment 343,000

    1/1/10 Cash 64,400


    Lease Receivable 64,400

    12/31/10 Interest Receivable 27,860


    Interest Revenue 27,860

    1/1/11 Cash 64,400


    Lease Receivable 36,540
    Interest Receivable 27,860

    12/31/11 Interest Receivable 24,206


    Interest Revenue 24,206
    EXERCISE 21-12 (Accounting for an Operating Lease)
    On January 1, 2011, Secada Co. leased a building to Ryker Inc. The relevant information related to
    the lease is as follows.
    1. The lease arrangement is for 10 years
    2. The leased building cost €3,600,000 and was purchased for cash on January 1,2011
    3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with
    no residual value.
    4. Lease payments are €220,000 per year and are made at the end of the year
    5. Property tax expense of €85,000 and insurance expense of €10,000 on the building were
    incurred by Secada in the first year. Payment on these two items was made at the end of the
    year.
    6. Both the lessor and the lessee are on a calendar-year basis

    Intructions
    a) Prepare the journal entries that Secada Co. should make in 2011
    b) Prepare the journal entries that Ryker Inc. should make in 2011
    c) If Secada paid €30,000 to a real estate broker on January 1, 2011, as a fee for finding the lesse,
    how much should be reported as an expense for this item in 2011 by Secada Co.?

    Solutions
    (a) Entries for Secada are as follows:

    1/1/11 Building 3,600,000


    Cash 3,600,000

    12/31/11 Cash 220,000


    Rental Revenue 220,000

    Depreciation Expense 72,000


    Accumulated Depreciation—
    Building (€3,600,000 ÷ 50) 72,000

    Property Tax Expense 85,000


    Insurance Expense 10,000
    Cash 95,000

    (b) Entries for Ryker are as follows:

    12/31/11 Rent Expense 220,000


    Cash 220,000

    (c) The real estate broker’s fee should be capitalized and amortized equally over the 10-year period. As
    a result, real estate fee expense of $3,000 (€30,000 ÷ 10) should be reported in each period.

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