V1. Please show calculations to receive full credit. ) Abbott Equipment leased a
ID: 2539722 • Letter: V
Question
V1. Please show calculations to receive full credit. ) Abbott Equipment leased a protein analyzer to Werner Chemical, Inc, on September 30, 2016. Abbott purchased the machine from NutraLabs, Inc, at a cost of $6.15 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $401,337, payable each September 30, December 31. March 31, June 30, with the first payment at September 30, 2016. Abbot's implicit interest rate is 1256. Required: 1. Prepare the appropriate journal entries for Abbott for 2016 related to the lease 2. What amounts related to the lease would Abbott report in its balance sheet at December 31 3. What amounts related to the lease would Abbott report in its income statement for the year 4. What amounts related to the lease would Abbott report in its statement of cash flows for the year 2016 (ignore taxes)? ended December 31, 2016 (ignore taxes)? ended December 31, 2016 (ignore taxes)? Please specify the section on the cash flow statement and inflow or outflow Northwest Paperboard Company, a paper and allied products manufacturer, was seeking to gain a foothold in Canada Toward that end, the company bought 40% of the outstanding common shares of Vancouver Timber and Milling, Inc, on January 2, 2016, for $590 million At the date of purchase, the book value of Vancouver's net assets was $870 million The book values aind fait values for all balance sheet items were the same except for inventory and plant facitities The fair value exceeded book value by $10 million for the inventory and by $15 milion for the plant facilities The estimated useful life of the plant facilities is 15 years All inventory acquired was sold during 2016 Vancouver reported net income of $210 million for the year ended December 31, 2016. Vancouver paid a cash dividend of s60 million. Required: 1. Prepare all appropriate journal entries related to the investment during 2016 2 What amount should Northwest report as its income from its investment in Vancouver for the year ended December 31, 20167 3 What amount should Northwest report in its balance sheet as its investment in Vancouver? 4. What should Northwest report in its statement of cash flows regarding its investment in Vancouver?Explanation / Answer
1. Finance Lease entries:
Workings: Total PV of lease amount receipts is $6,216,724.66, calculated as shown below. At the end of lease period, the balance in Lease receivable will be zero.
Month
Instalment (a)
PV Factor (@2.87%, the quarterly rate of 12% p.a)
PV (a*PVF =b)
Income (a-b= c)
Credit to Lease receivable (a-c =d)
Balance in Lease receivable
30-Sep-16
401,337
1.0000
401,337.00
-
401337
5,815,388
31-Dec-16
401,337
0.9721
390,139.98
11,197.02
390139.98
5,425,248
31-Mar-17
401,337
0.9450
379,255.35
22,081.65
379255.35
5,045,992
30-Jun-17
401,337
0.9186
368,674.40
32,662.60
368674.4
4,677,318
30-Sep-17
401,337
0.8930
358,388.64
42,948.36
358388.64
4,318,929
31-Dec-17
401,337
0.8681
348,389.86
52,947.14
348389.86
3,970,539
31-Mar-18
401,337
0.8439
338,670.03
62,666.97
338670.03
3,631,869
30-Jun-18
401,337
0.8203
329,221.37
72,115.63
329221.37
3,302,648
30-Sep-18
401,337
0.7974
320,036.33
81,300.67
320036.33
2,982,612
31-Dec-18
401,337
0.7752
311,107.54
90,229.46
311107.54
2,671,504
31-Mar-19
401,337
0.7536
302,427.86
98,909.14
302427.86
2,369,076
30-Jun-19
401,337
0.7325
293,990.34
107,346.66
293990.34
2,075,086
30-Sep-19
401,337
0.7121
285,788.22
115,548.78
285788.22
1,789,298
31-Dec-19
401,337
0.6922
277,814.93
123,522.07
277814.93
1,511,483
31-Mar-20
401,337
0.6729
270,064.09
131,272.91
270064.09
1,241,419
30-Jun-20
401,337
0.6541
262,529.49
138,807.51
262529.49
978,889
30-Sep-20
401,337
0.6359
255,205.11
146,131.89
255205.11
723,684
31-Dec-20
401,337
0.6181
248,085.07
153,251.93
248085.07
475,599
31-Mar-21
401,337
0.6009
241,163.67
160,173.33
241163.67
234,435
30-Jun-21
401,337
0.5841
234,435.37
166,901.63
234435.37
(0)
Total
6,216,724.66
2. The following will be shown on balance sheet :
a. Lease receivable (as shown in the last column in the above table)
b. Cash received would have been included in the Checking account balance
3. The Lease rental income will be shown in Profit and Loss
4. Statement of cash flows:
a. Lease rental income will be included in the Net operating Income
b. Decrease in Lease asset will be reported under Investing activities
Account titles and explanation Debit Credit 30-Sep Lease Receivable 6,216,724.66 To Asset 6,216,724.66 (To record Lease contract ) 30-Sep Cash Account Dr 401,337.00 To Lease Receivable 401,337.00 Lease rental Income - (To record Lease payment received) 31-Dec-16 Cash Account Dr 401,337.00 To Lease Receivable 390,139.98 Lease rental Income 11,197.02 (To record Lease payment received)Related Questions
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