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An example of a postretirement benefit provided by a company is medical insurance for reti

An example of a postretirement benefit provided by a company is medical insurance for retired workers.

12) A defined contribution plan is one where the company promises the employee a specific monthly benefit upon retirement.

13) A defined benefit pension plan is one where the company promises the employee a specified monthly benefit upon retirement.

14) Accountants generally prefer operating leases.

15) The lessee in a capital lease capitalizes the asset in its financial statements if they are likely to take legal title to the property.

16) An operating lease is basically any lease that is not a finance lease.

17) For a finance lease, organizations must disclose not only the total minimum lease payments due at the end of the year but also those due within one year, within two to five years and after five years.

18) For each section, indicate for each situation the type of lease: finance or operating.

a. JetNew leases a new truck for 5 years.  The truck goes back to the leasing company after the 5 years are up.

b. Newer Co.  leases a special generator designed specifically for their plant in Nunavut

Due to its special design, this piece of equipment would not be useful to another  organization.

c. Test Bunks Incorporated leases a new cutting machine for 15 years.  A cutting machine typically last for 18 years with regular maintenance.

19) For each section indicate for each situation what type of lease: sales, direct financing or operating.

a. Newer Co leases Older Co. a truck.  Based upon Newer Co calculations the fair value of this truck is greater than its carrying value which provides Newer Co with additional profit on this deal.

b. Newer Co leases a laser cutting machine from Older co.  The life of the cutter is expected to be 10 years and the lease term is 4.

c. Older Co leases a building to Newer Co.  Looking at the books of Older Co the fair value of the building leased equals its carrying value.  In the lease agreement it states that Newer Co is to assume all the risks and benefits associated with using this building.   

20) December 31, 2010 Awesome Laser Graphic Incorporated signs a new lease for a state of the art multiple laser cutting machine.  The lease is for 10 years with payments beginning at year end of 2011 of $6,200,000.  The estimate price of this cutting machine is $50,000,000.  Using an interest rate of 5% the present value of the lease payments would be (7.722 × $6,200,000) $47,876,400.   This machine is expected to cut 100,000 parts over its lease term.  After the first year the machine has completed 8,500 parts.  Prepare the journal entries to record: the signin

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