50.1K

Verified Solution

Link Copied!

Comprehensive Exercise on Accounting for Leasing Chapter 21 Al Barake Corporation is operating business in information technology equipment as a leaser to the universities in the MENA region. GK University is planning to lease information technology equipment with a face value of $11,400,000 for 7 years against estimated economic life of 8 years. The guaranteed residual value is estimated to be 0.12 FV under SLM. The maintenance cost on annual basis is projected to be 0.02 FV under BPT of 15%. The RRR in Kuwait as both leaser and lessee operating business is ranging between 10% and 12% with an average of 11%. Al Barake Corporation shows its commitment to meet the four criteria of the FASB and to be included in the lease agreement. The executory cost is around $950,000. The nominal interest rate is 7%. Required: 1. Find out the right lease amount as it could be taken as a base of agreement between Al Barake Corporation and the GKU. CI + Mt (1-T) (x)=Lt (1-T) (y) + TDX + SV2 2. Find out the minimum lease amount, the amount to be recovered by the leaser and the capitalization components of the lessee. 3. Develop the amortization schedules for the lessee and the leaser. 4. Compare and contrast between the total charge as spelled out by the capitalization method and the operational method. 5. Due to the expected financial difficulties, the leaser may sell and lease back the asset at the end of year (3) under capital gain of 10%. Thus, the leaser will take the position of mediator. Give elaboration on the effects of this point. Comprehensive Exercise on Accounting for Leasing Chapter 21 Al Barake Corporation is operating business in information technology equipment as a leaser to the universities in the MENA region. GK University is planning to lease information technology equipment with a face value of $11,400,000 for 7 years against estimated economic life of 8 years. The guaranteed residual value is estimated to be 0.12 FV under SLM. The maintenance cost on annual basis is projected to be 0.02 FV under BPT of 15%. The RRR in Kuwait as both leaser and lessee operating business is ranging between 10% and 12% with an average of 11%. Al Barake Corporation shows its commitment to meet the four criteria of the FASB and to be included in the lease agreement. The executory cost is around $950,000. The nominal interest rate is 7%. Required: 1. Find out the right lease amount as it could be taken as a base of agreement between Al Barake Corporation and the GKU. CI + Mt (1-T) (x)=Lt (1-T) (y) + TDX + SV2 2. Find out the minimum lease amount, the amount to be recovered by the leaser and the capitalization components of the lessee. 3. Develop the amortization schedules for the lessee and the leaser. 4. Compare and contrast between the total charge as spelled out by the capitalization method and the operational method. 5. Due to the expected financial difficulties, the leaser may sell and lease back the asset at the end of year (3) under capital gain of 10%. Thus, the leaser will take the position of mediator. Give elaboration on the effects of this point

Answer & Explanation Solved by verified expert

See Answer