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On January 1,2004, Haden Company (as lessor) entered into a noccancelable lease agreement with Sandy Corporation for machinery which was carried on the accounting records of Haden at $4,530,000 and had a market value of $4,800,000. Minimum lease payments under the lease agreement which expires on December 31,2013, total $7,100,000. PAYMENTS of $710,000 are due each January 1. The first payment was made on January 1, 2004 when the lease agreement was finalized. The interest rate of 10%which was stipulated in ths lease agreement is the implicit rate set by the lessor. The effective interest method of amortization is being used. Sandy expects the machines to have a ten year life with no salvage value, and be depreciated on a straight-line basis. Collectibility of the rentals is reasonably predactible, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.

a, From the lessee's viewpoint,what kind of lease is the above agreement. From the lessor's viewpoint, what kind of lease is this agreement?

b.What should be the income before income taxes derived by Haden from the lease for the year ended December 31,2004?

c. Ignoring income taxes, what should be the expenses incurred by Sand from the lease for the year ended December 31,2004?

d, What journal entries should be recorded by Sandy Company for all of 2004?

e. What journal entries should be recorded by haden Company for all of 2004?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M945559

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