Essay #3 …
Essay #3 C-Company on January 1, 2021, enters into a nine-year noncancelable lease for standard use machinery having an estimated useful life of 10 years. The fair value of the machinery at the inception of the lease is $8,000,000. The implicit rate of borrowing rate is 5% and is known to the lessee. I-Corp manufactures the machinery at a cost of $6,000,000 and, when appropriate, uses the straight-line method to depreciate its assets. The lease contains the following provisions: A. Annual Lease payments of $1,071,924.42 are payable at the beginning of each lease period beginning on 1/1/2021. B. No purchase option is contained in the lease agreement. However, at the end of the lease term the Lessor will transfer the title to the machinery to the Lessee Requirements: 1) Prepare the appropriate journal entries (including adjusting entries) for both C-Corp and I-Corp during the first year of the lease term (1/1/2021 thru 1/1/2022). Both companies have calendar year-ends (i.e. 12/31/XX). 2) Describe and quantify the impact of the lease on C-Corp Balance Sheet as of 12/31/21 and the Income Statement for the year ended 12/31/21. Discussion should include identification of classification (e.g. current, operating, etc.) of amounts as applicable to each statement. NOTE: Due to rounding, your amortization table may have a small amount (i.e. < $1) after the last payment
Read DetailsEssay #4 Using the lease arrangement from Essay #3, desc…
Essay #4 Using the lease arrangement from Essay #3, describe and quantify for the lessee (only) the impact of amending the lease agreement and providing for a purchase option ($600,000) at the end of the lease term. It has been determined that the purchase option is highly likely to be exercised. The transfer of title (ownership) for the asset has been removed from the lease agreement, also. Including an amortization table with your discussion will be highly desirable for partial grading.
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