// Ch 15 HW CIntermediate Accounting 8 xCProblem 15-16 Lessee-gua Hampton x Inte

Question

// Ch 15 HW CIntermediate Accounting 8 xCProblem 15-16 Lessee-gua Hampton x Intermediate Accounting 8t X x Dezto.mheducation.com/hm.tpx?0.38075608525 12385_1 460680758357 On December 31, 2016, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $40,000 for the truck. Its retail value is $71,868. The lease agreement specified annual payments of $20,000 beginning December 31, 2016, the inception of the lease, and at each December 31 through 2019. Branch Motors' interest rate for determining payments was 11%. At the end of the four-year lease term (December 31, 2020) the truck was expected to be worth S15,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line depreciation. Yard Art guaranteed a residual value of $6,000. Guarantor Assurance Corporation was engaged to guarantee a residual value of $12,000, but with a deductible equal to any amount paid by the lessee ($12,000 reduced by any amount paid by the lessee). Yard Art's incremental borrowing rate is 9% A $2,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expediency, Branch Motors agreed to pay this fee. It is, however, reflected in the $20,000 lease payments. Collectibility of the lease payments by Yard Art is reasonably predictable and there are no costs to the lessor that are yet to be incurred. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. How should this lease be classified by Yard Art Landscaping (the lessee)? Capital lease Operating lease Capital lease. Direct financing lease Capital lease: Sales-type lease 2. Calculate the amount Yard Art Landscaping would record as a leased asset and a lease liability. (Round your intermediate calculations to the nearest dollar amount.) unt 67.814 3. How should this lease be classified by Branch Motors (the lessor)? Operating lease Capital lease. Direct financing lease Capital lease Capital lease: Sales-type lease 4. Show how Branch Motors calculated the $20,000 annual lease payments. sor's Calculation of Lease Payments 71,868 Amount to be recovered (fair value) Less: Present value of the residual value Amount to be recovered through periodic lease payments Lease payments at the beginning of each of the next four years Add: Executory costs Lease payme 71.868 18,000 2,000 20,000 $ nts including executory costs

Explanation / Answer

Since, there are multiple questions and 1 to 3 have already been answered, the answer to question 4 to 7 has been provided.

_________

Part 4)

The table is provided below:

__________

Part 5)

The value of sales revenue is calculated as follows:

__________

Part 6)

The journal entries are as follows:

__________

Part 7)

The amortization schedule is given below:

Lessor's Calculation of Lease Payments Amount to be Recovered (Fair Value) 71,868 Less Present Value of Residual Value (15,000*.65873) 9,881 Amount to be Recovered through Periodic Lease Payments 61,987 Lease Payments at the Beginning of Each of 4 Years (61,663/3.44371) 18,000 Add Executory Costs 2,000 Lease Payments including Executory Costs $20,000

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