Question : 111. Henson Manufacturing Company signed a 3-year contract for the use : 1245675

 

 

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