Answered: a Leasing Company signs an agreement on…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...

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(a)

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Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)

SHAMROCK COMPANY (Lessee) Lease Amortization Schedule
Date	Annual Lease Payment	Interest on Liability	Reduction of Lease Liability	Lease Liability
1/1/20	$enter a dollar amount	$enter a dollar amount	$enter a dollar amount	$enter a dollar amount
1/1/20	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
1/1/21	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
1/1/22	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
	$enter a total amount for this column	$enter a total amount for this column	$enter a total amount for this column

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List of Accounts

Attempts: 1 of 3 used

(b)

Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

choose a transaction date

enter an account title To record the lease

enter a debit amount

enter a credit amount

enter an account title To record the lease

enter a debit amount

enter a credit amount

(To record the lease)

choose a transaction date

enter an account title To record lease payment

enter a debit amount

enter a credit amount

enter an account title To record lease payment

enter a debit amount

enter a credit amount

(To record lease payment)

choose a transaction date

enter an account title To record interest expense

enter a debit amount

enter a credit amount

enter an account title To record interest expense

enter a debit amount

enter a credit amount

(To record interest expense)

choose a transaction date

enter an account title To record amortization of the right-of-use asset

enter a debit amount

enter a credit amount

enter an account title To record amortization of the right-of-use asset

enter a debit amount

enter a credit amount

(To record amortization of the right-of-use asset)

choose a transaction date

enter an account title To reverse interest expense

enter a debit amount

enter a credit amount

enter an account title To reverse interest expense

enter a debit amount

enter a credit amount

(To reverse interest expense)

choose a transaction date

enter an account title To record lease payment

enter a debit amount

enter a credit amount

enter an account title To record lease payment

enter a debit amount

enter a credit amount

enter an account title To record lease payment

enter a debit amount

enter a credit amount

(To record lease payment)

choose a transaction date

enter an account title To record interest expense

enter a debit amount

enter a credit amount

enter an account title To record interest expense

enter a debit amount

enter a credit amount

(To record interest expense)

choose a transaction date

enter an account title To record amortization of the right-of-use asset

enter a debit amount

enter a credit amount

enter an account title To record amortization of the right-of-use asset

enter a debit amount

enter a credit amount

(To record amortization of the right-of-use asset)

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1.		The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.
2.		The fair value of the asset at January 1, 2020, is $59,000.
3.		The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $4,000, none of which is guaranteed.
4.		The agreement requires equal annual rental payments of $19,211 to the lessor, beginning on January 1, 2020.
5.		The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee.
6.		Shamrock uses the straight-line depreciation method for all equipment.