Hay Corporation's - Assignment Example

Part 1.What type of lease is this from Hay Corporations viewpoint? Please be specific. Capital lease2. From the viewpoint of Marly Rentals Co, what type of lease agreement exists? Please be specific. Operating Lease 3. Record the journal entries for 20X8 and 20X9 for Marty Rentals Co pertaining to the lease. Operating Lease Accounting – to record rental payments Account Debit Credit Rental expense 400000 Cash 400000 Total 400000 40000 4. Record the journal entries for 20X8 and 20X9 for Hay Corporation pertaining to the lease.

Capital lease journal entry for Hay Corporation for 2008 Account Names Debits Credits Lease receivable 465,639          Unearned interest revenue   65,639        Machine   400,000 Depreciation account Account Names Debits Credits Depreciation expense account 40,000   Accumulated depreciation   40,000 For 2009 Account Names Debits Credits       Cash 155,213          Lease receivable   155,213       Unearned interest revenue 32,000          Interest revenue   32,000 5.

What if Immediately after signing the lease, Marly finds out that Hay Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful. Does this affect the accounting treatment by Mary for this lease? If so, give the journal entries for the 20X8 only. If no change, please indicate no change. This will not affect the accounting treatment by Mary. No change. Part II Peter Co. borrowed $200,000 on January 1, 20X4, and signed a two-year note due January 1, 20X6, bearing interest at 12%.

Interest is payable in full at maturity along with the principal. Required: a.What if note was a non-interest bearing note? Record the journal entries for 20X4, 20X5, and 20X6 pertaining to this note. For 2004 The business will receive cash $200,000 in return for having to pay back the lender a sum of Future Value: FV = PV(1 + i)n = 200000(1+0.12)2 = 250880 Non interest bearing note – issued at a discount Account Debit Credit Cash 200,000 Discount on notes payable 50880 Notes payable 250880 Total 25080 25080 For 2005, At this point, the non interest bearing note is recorded.

The discount on the notes payable is amortized as interest expense. The amount would be 50880/2 = 25440 per year Non interest bearing note payable – discount amortized Account Debit Credit Interest expense 25440 Discount on notes payable 25440 Total 25440 25440 For 2006, This represents the end of the term, whereby all the discounts has been amortized and recognized as an expense in the income statement. Hence the balance on notes payable account will become zero: Non interest bearing note – Payment at the end of the term Account Debit Credit Notes payable 250880 Cash 25,0880 Total 25,080 25080