Question

Hayes corp is a manufacturer of truck trailers. On January 1, 2014 Hayes corp leases 11 trailers to lester company under a 5 year non cancelable lease agreement. The following information about the lease and trailers is provided.

1. equal annual payments that are due on jan 1 each year provide hayes corp with an 8% return on net investment.

2. titles to the trailers pass to lester at the end of the lease

3. The fair value of each trailer is 53000. the cost of each trailer to hayes corp is . each trailer has an expected useful life of nine years

4.collectabliliy fo the lease payments is reasonably predictable andthere are no important uncertainties surrounding the amount of costs yet to be incurred by hayes corp

What type of lease is this for the lessor?

annual lease payment amount is?

prepare an amortization schedule forHayes corp for the first 3 years.

prepare the journal entries for the lessor for the lease agreement, the receipt of the lease rentals and the recognition of revenue.

Answer 1

Step-by-step explanation:

Base on the scenario been described in the question, the solve the problem through the following method

(a) It is a sales-type lease to the lessor, Hayes Corp. Hayes's (the manufacturer) profit upon sale is $50,000, which is recognized in the year of sale (2014). It is not an operating lease because title to the assets passes to the lessee, and the present value ($500,000) of the minimum lease payments equals or exceeds 90% ($450,000) of the fair value of the leased trailers. The remaining accounting treatment is similar to that accorded a direct-financing lease.

(b)($50,000 × 10) ÷ 4.62288 = $108,158.21 - 34

Accounting for Leases

Solution 21-128(cont.)

(c)Lease Amortization Schedule (Lessor) Lease Annual Interest on Receivable Lease Date Lease Rental Lease Receivable Recovery Receivable1 /1/15$500,00012/31/15$108,158$40,000$68,158431,84212/31/16108,15834,54773,611358,23112/31/17108,15828,65879,500278,731

(d) January 1, 2014Lease Receivable.........................................................................500,000Cost of Goods Sold......................................................................450,000Sales Revenue.................................................................500,000Inventory...........................................................................450,000December 31, 2015Cash.............................................................................................108,158Lease Receivable.............................................................68,158Interest Revenue..............................................................40,000December 31, 2016Cash.............................................................................................108,158Lease Receivable.............................................................73,611Interest Revenue..............................................................34,547*Ex. 21-129—Lessee and lessor accounting (sale-leaseback).