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1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment.

1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic Incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $13,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. • The expected useful life of the asset is nine years, and Its fair value is $97,500. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only If It exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." • The relevant interest rate at that time was 5%. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment.
Transcribed Image Text:On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic Incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $13,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. • The expected useful life of the asset is nine years, and Its fair value is $97,500. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only If It exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." • The relevant interest rate at that time was 5%. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment.
Required 1 Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar. N IN View transaction list No 1 2 3 2 Date January 01, 2026 No 1 View journal entry worksheet December 31, 2026 December 31, 2026 Required 2 View transaction list Right-of-use asset Lease payable Date January 01, 2028 General Journal Interest expense Amortization expense Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment. December 31, 2026 Interest expense Amortization expense Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar. View journal entry worksheet Interest expense Lease payable Cash Debit General Journal Amortization expense Right-of-use asset Credit Debit Show lessA Credit Ⓒ Show lessA
Transcribed Image Text:Required 1 Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar. N IN View transaction list No 1 2 3 2 Date January 01, 2026 No 1 View journal entry worksheet December 31, 2026 December 31, 2026 Required 2 View transaction list Right-of-use asset Lease payable Date January 01, 2028 General Journal Interest expense Amortization expense Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment. December 31, 2026 Interest expense Amortization expense Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar. View journal entry worksheet Interest expense Lease payable Cash Debit General Journal Amortization expense Right-of-use asset Credit Debit Show lessA Credit Ⓒ Show lessA
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