Soal E21A-13.
Phelps Company leases a building to Walsh, Inc. on January 1, 2017. The following facts pertain
to the lease agreement.
1.The lease term is 5 years, with equal annual rental payments of $4,703 at the beginning of each
year.
2.Ownership does not transfer at the end of the lease term, there is no bargain purchase option,
and the asset is not of a specialized nature.
3.The building has a fair value of $23,000, a book value to Phelps of $16,000, and a useful life of
6 years.
4.At the end of the lease term, Phelps and Walsh expect there to be an unguaranteed residual
value of $4,000.
5.Phelps wants to earn a return of 8% on the lease, and collectibility of the payments is probable.
This rate is known by Walsh.
4.31213
(a)
How would Phelps (lessor) and Walsh (lessee) classify this lease? How would Phelps initially
measure the lease receivable, and how would Walsh initially measure the lease liability and
right-of-use asset?
(b)
Using the original facts of the lease, show the journal entries to be made by both Phelps and
Walsh in 2017.
(c)
Suppose the entire expected residual value of $4,000 is guaranteed by Walsh. How will this
change your answer to part (a)?
(d)
Assume the same facts as part (c), except the expected residual value is $3,000. Does your
answer change?
Jawaban dan solusi
(a) The lease will be classified as a sales-type lease for Phelps and a finance lease for Walsh.
While ownership does not transfer at the end of the lease, there is no bargain purchase option, the
asset is not specialized, and the present value test is not met (see calculation of lease liability for
PV of lease payments), the lease term is greater than 75% of the useful life of the asset (5 ÷ 6 =
83%).
The calculation of the lease receivable for Phelps is done as follows:
Annual rental payments $4,703
Present value of an annuity due
for 5 periods at 8% x 4.31213
Present value of rental payments (rounded) $20,280*
*This value should be used in performing the present value test. The lease fails the present value
test because $20,280 ÷ $23,000 = 88.2%, which is less than 90%.
Expected residual value $4,000
Present value of $1 for 5 periods at 8% 68058
Present value of residual value (rounded) $2,722
Present value of expected residual value $2,722
Present value of annual rental payments 20,280
Lease Receivable $23,000*
*Rounded by $2.
The initial lease liability and right-of-use asset, from Walsh's (lessee's) point of view is the
present value of the rental payments ($20,280), and excludes the residual value. This is because
Walsh does not guarantee any part of the residual value.
(b)
Phelps' Journal Entries
1/1/17
Lease Receivable 23,000*
Cost of Goods Sold 13,280**
Sales Revenue 20,280***
Inventory 16,000
*($4,703 X 4.31213) + ($4,000 X .68058), rounded
**$16,000 - ($4,000 X .68058), rounded
***$4,703 X 4.31213, rounded
Cash 4,703
Lease Receivable 4,703
12/31/17
Lease Receivable 1,464
Interest Revenue
[(23,000 - $4,703) x .08] 1,464
Walsh's Journal Entries
1/1/17
Right-of-Use Asset 20,280
Lease Liability 20,280
Lease Liability 4,703
Cash 4,703
12/31/17
Interest Expense 1,246
Lease Liability
[($20,280 - $4,703) x .08] 1,246
Amortization Expense 4,056
Right-of-Use Asset ($20,280 ÷ 5)..... 4,056
(c) If the residual value is guaranteed, Walsh must consider this guarantee in determining
whether the present value test for classification purposes, is met. However, the lease term test
was already met, so this will not change the classification of the lease from either party's
perspective.
With respect to the initial measurement of the lease receivable, the lessor always includes the
residual value in the lease receivable, whether it is guaranteed or not. Therefore, Phelps'
measurement of the lease receivable ($23,000) does not change as a result of the guarantee.
For the lessee, only the amount that is probable to be owed under the guaranteed residual value
should be included in the initial measurement of the lease liability and right-of-use asset. In this
case, because Walsh expects the residual value to be equal to the residual value guarantee, Walsh
will not include any amount of the residual value in the calculation of the lease liability and
right-of-use asset, and the initial measurements will remain $20,280. In order for the answer to
change, the expected residual value would have to be lower than the guarantee.
(d) Walsh would need to include the present value of the amount probable to be owed under the
residual value guarantee in its initial measurement of the lease liability. Because the expected
residual value is less than the guaranteed residual value, Walsh must include the present value of
the difference, or the amount it expects to pay Phelps at the end of the lease term. Thus, the
initial measurement of the lease liability and right-of-use asset would instead be:
Present value of rental payments (rounded) $20,280
Present value of amount probable to be owed
[($4,000 - $3,000) X .68058* $681
Lease liability $20,961
*Present value of $1 for 5 periods at 8%.
