111. Henson Manufacturing Company signed a 3-year contract for the use of certain manufacturing equipment with an estimated life of three years. Henson Manufacturing Company cannot cancel the contract. What entry is made to record the contract? A. Rent Expense XX Cash XXB. Manufacturing Equipment XX Cash XXC. Leased Asset–Manufacturing Equipment XX Lease Liability XXD. Lease Liability XX Leased Asset–Manufacturing Equipment XX E. Rent Expense XX Leased Asset–Manufacturing Equipment XX
112. Quan RestaurantOn January 1, Year 7, Quan Restaurant is planning to enter as the lessee into the two lease agreements described below. Each lease is noncancelable, and Quan does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 each year.
Lessor
Hadaway Inc.
Cutter Electronics
Type of property
Oven
Computer
Yearly rental (not including executory costs)
$15,000
$4,000
Lease term
10 years
3 years
Economic life
15 years
5 years
Purchase option
None
$3,000
Renewal option
None
None
Fair market value at inception of lease
$125,000
$10,200
Unguaranteed residual value
None
$2,000
Lessee’s incremental borrowing rate
10%
10%
Executory costs paid by
Lessee
Lessor
Annual executory costs
$800
$500
Present value factor at 10% (of an annuity due)
6.76
2.74
(CMA adapted, Dec 93 #27) Refer to the Quan Restaurant example. Quan should treat the lease agreement with Hadaway Inc. as a(n) A. capital lease with an initial asset value of $101,400.B. operating lease, charging $14,200 in rental expense and $800 in executory costs to annual operations.C. operating lease, charging the present value of the yearly rental expense to annual operations.D. operating lease, charging $15,000 in rental expense and $800 in executory costs to annual operations.E. capital lease with an initial asset value of $100,000.
113. Quan RestaurantOn January 1, Year 7, Quan Restaurant is planning to enter as the lessee into the two lease agreements described below. Each lease is noncancelable, and Quan does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 each year.
Lessor
Hadaway Inc.
Cutter Electronics
Type of property
Oven
Computer
Yearly rental (not including executory costs)
$15,000
$4,000
Lease term
10 years
3 years
Economic life
15 years
5 years
Purchase option
None
$3,000
Renewal option
None
None
Fair market value at inception of lease
$125,000
$10,200
Unguaranteed residual value
None
$2,000
Lessee’s incremental borrowing rate
10%
10%
Executory costs paid by
Lessee
Lessor
Annual executory costs
$800
$500
Present value factor at 10% (of an annuity due)
6.76
2.74
(CMA adapted, Dec 93 #28) Refer to the Quan Restaurant example. Quan Restaurant should treat the lease agreement with Cutter Electronics as a(n) A. operating lease, charging $3,400 in rental expense and $500 in executory costs to annual operations.B. operating lease, charging $4,000 in rental expense and $500 in executory costs to annual operations.C. operating lease, charging $3,500 in rental expense and $500 in executory costs to annual operations.D. capital lease.E. operating lease, charging $3,500 in rental expense and $400 in executory costs to annual operations.
114. On January 1, Year 1, Lamp Company acquires new equipment in exchange for a note. Lamp must pay a lump sum of $32,000 on December 31, Year 3. The equipment is being specifically manufactured for Lamp, so no market price exists for the equipment. On similar types of equipment purchases, Lamp has paid 15% interest. The equipment has a five-year life and the company uses straight-line depreciation with a 10% salvage value.Required:Prepare journal entries to record the following:
a.
original acquisition of equipment
b.
any adjusting journal entry necessary at December 31, Year 1
c.
entry to record depreciation at December 31, Year 2
d.
entry to record payment on December 31, Year 3
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