1. Question 1 Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%. Please refer to the instructions and the table in this question. Enter the correct journal entry for part [A]. Project 2.2 Part 2 Journal Entries Date Account Name (Debit) Account Name (Credit) Debit Credit 1/1/20X1 ROU assets [A] Lease obligation [B] 1/1/20X1 Lease obligation [C] Cash [D] 12/31/20X1 Rental expense [E] Accrued interest [F] ROU assets [G] 1/1/20X2 Lease obligation [H] Accrued interest [I] Cash [J] 12/31/20X2 Rental expense [K] Accrued interest [L] ROU assets [M]

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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1.

Question 1

Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%.

Please refer to the instructions and the table in this question. Enter the correct journal entry for part [A].

Project 2.2 Part 2 Journal Entries

Date	Account Name (Debit)	Account Name (Credit)	Debit	Credit
1/1/20X1	ROU assets		[A]
		Lease obligation		[B]

1/1/20X1	Lease obligation		[C]
		Cash		[D]

12/31/20X1	Rental expense		[E]
		Accrued interest		[F]
		ROU assets		[G]


1/1/20X2	Lease obligation		[H]
	Accrued interest		[I]
		Cash		[J]


12/31/20X2	Rental expense		[K]
		Accrued interest		[L]
		ROU assets		[M]

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