company operating under IFRS, leased equipment from Lessor Inc. for a period of three years. Lease payments of $100,000 are paid annually by Lessee Ltd., as well as $2,000 of other expenses including insurance, taxes and maintenance. The lessee’s incremental borrowing rate is listed at 11%, and the lessor’s implicit rate is calculated at 10%. The equipment reverts back to the lessor at the termination of the lease. The equipment has a 4-year useful life and a fair value of $265,000. Additionally, the
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Memorandum To: Big Wig, CFO, Big Bear Power From: James Albert Date: March 24th, 2016 Subject: The Bear Minimum Statement of Relevant Facts: Big Bear Power and Goliath Company entered into a contract in which Big Bear leased a combustion turbine. * The contract was signed on December 15th, 2004, but did not begin until January 1st, 2005. * The contract lasts for 10 years and is non-cancelable * Big Bear pays $500,000 in legal counsel fees, and are required to pay $1,000,000
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British company that applies IFRSs) and Lessor Inc. had a lease agreement starting on January 1, 2007 which Lessee Ltd. rents equipment from Lessor Inc. for three years. The remaining useful life of the equipment is four years. The fair value of the equipment is $265,000. At the end of the lease term, Lessee Ltd. has guaranteed $20,000 as the residual value. The agreement contains no purchase or renewal options, which means at the end of the lease term, Lessee Ltd. needs to return this equipment to Lessor
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Accounting for Leases Source: Solutions Manual t/a Australian Financial Accounting 7/e by Craig Deegan 11.1 Within AASB 117 a lease is defined as: an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. 11.2 We should capitalise a lease transaction (meaning that the leased asset and lease liability will be placed on the statement of financial position) when substantially all the risks and
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“The Bear Minimum” Case ACTG 352: Intermediate Accounting III October 9th, 2014 To: Big Bear Power Date: October 7, 2014 Re: The Bear Minimum Summary Big Bear Power, a public utility company, has entered into a 10-year non-cancelable agreement with Goliath Company to lease a turbine. The lease is effective on January 1, 2011. The purpose of this report is to provide Big Bear with insight in evaluating whether the costs or potential costs associated with the lease should be included
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recently entered into a contract with Tiger Company (“Tiger”) to lease a backhoe, which Eagle will use for a new project involving the construction of several apartment complexes in the Mobile area. The pertinent terms of the lease are as follows: • The lease term is for 10 years, while the economic life of the backhoe is estimated to be 15 years. The useful life of the backhoe is also estimated to be 15 years. • Annual lease payments of $16,000 are due at the end of each year. Eagle is also responsible
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CHAPTER 15 LEASES Overview In the previous chapter, we saw how companies account for their long-term debt. The focus of that discussion was bonds and notes. In this chapter we continue our discussion of debt, but we now turn our attention to liabilities arising in connection with leases. Leases that produce such debtor/creditor relationships are referred to as capital leases by the lessee and as either direct financing or sales-type leases by the lessor. We also will see that some leases do not
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included in the lessee’s minimum lease payments.”2 The external legal counsel fee of $500,000 that Thurber paid to Stipe, Berry, Mills and Buck LLP in connection with negotiating the lease agreement are executory cost because they are all third parties that guarantee for the lease agreement. They are not involved in the lease term. Thurber will have to recognize these costs as expenses. However, the $1 million of legal fees paid to Goliath will be included in the minimum lease payment. Under ASC 840-10-25-6
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FASB website for information on leases and lease structure issues, in particular the current practices and thought related to direct financing, sales type, and operating leases. The following is a brief explanation of the results and also a recommendation of an approach that the client can use to evaluate and capitalize on the opportunity of adding the new customer. The FASB has outlined certain criteria for classifying leases as either capital leases or operating leases. In SFAS No. 13 the criteria
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Accounting for Leases SOLUTIONS TO EXERCISES EXERCISE 21-1 (15–20 minutes) (a) This is a capital lease to Adams since the lease term (5 years) is greater than 75% of the economic life (6 years) of the leased asset. The lease term is 831/3% (5 ÷ 6) of the asset’s economic life. (b) Computation of present value of minimum lease payments: $9,968 X 4.16986* = $41,565 *Present value of an annuity due of 1 for 5 periods at 10%. (c) 1/1/12 Leased Equipment................................... Lease Liability
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