Accounting for Leases Using Finance and Operating Lease MethodsCore Co. leased a piece of manufacturing equipment from E-So Co. with the following terms:Annual lease payment: $770,000Term of lease: 5 yearsInterest rate: 4%Lease commences on January 1, 2023Payments are made on December 31 of each year in the lease termFor parts a and b:a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease.b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease.Operating LeaseFinance Leaseb. Operating lease:DateJan. 1, 2023AccountTo record the start of the operating lease.Dec. 31, 2023To record the lease payment.Dec. 31, 2023To record the lease expense.Dec. 31, 2024To record the lease payment.Dec. 31, 2024To record the lease expense.> > > > > > > > > > > >DebitCredit

Journal entries are used to record all the financial transactions. It helps to know the financial…

Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $770,000 Term of lease: 5 years nterest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. p. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease . Operating lease: Date Jan. 1, 2023 Account To record the start of the operating lease. Dec. 31, 2023 To record the lease payment. Dec. 31, 2023 Dec. 31, 2024 To record the lease expense. To record the lease payment. Dec. 31, 2024 To record the lease expense. > > > > > > > > > > Debit Credit

Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $770,000 Term of lease: 5 years nterest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. p. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease . Operating lease: Date Jan. 1, 2023 Account To record the start of the operating lease. Dec. 31, 2023 To record the lease payment. Dec. 31, 2023 Dec. 31, 2024 To record the lease expense. To record the lease payment. Dec. 31, 2024 To record the lease expense. > > > > > > > > > > Debit Credit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Annual Lease ayment Plus GRV 0 101571 LA $ Lease Amortization Schedule Interest on Liability 0 $…

A: Annual lease payment on a lease has both interest payment and a portion of lease liability.

Q: Recording Sales-Type Lease Journal Entries-Residual Value Smith, the lessee, signs an eight-year…

A: To document investment in the lease and derecognize assets:Lease Receivable: The annual payments'…

Q: Assets Balance Sheet December 31 Noncurrent assets: Right-of-Use Asset Liabilities Current…

A: A lease is a contractual agreement granting the right to use an asset, such as property or…

Q: A. Prepare all of Hoosiers’ 2023 journal entries related to this lease. B. What is reported on…

A: Lease is a contract that conveys the right to control the use of an identified asset for a period of…

Q: On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease…

A: Lease: A lease is an arrangement in which there are typically two parties: the lessor and the…

Q: A lease agreement that qualifies as a finance lease calls for annual lease payments of $16,000 over…

A: Lease is an agreement where an asset of lessor is given to the lessee for a time period and in…

Q: 1. Computing the Annual Lease Payments On January 1, 2020, Alpha Inc. leased equipment to Omega…

A: Annual payment can be calculated using the formula of the present value of annuity due. Present…

Q: Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of…

A: To solve this problem, we need to calculate the present value of the lease payments using the given…

Q: Plum Ltd. entered into four separate contracts to lease new equipment to Grape Co. during the year…

A: Classification of leases from the Lessor's perspective Lease Number 1 2 3 4…

Q: Gomez Inc. entered into a contract on January 1 to lease a vehicle for one year, with monthly…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: Date of entering lease 1 July 2019 Duration of lease 5 years Life of asset 6 years Unguaranteed…

A: Fair value of the lease is the present value of future lease payments. Lease payments includes…

Q: nalyzing and Interpreting Lease Footnote Disclosures he GAP Inc. discloses the following schedule to…

A: The present value of a series of cash flows can be determined by adding the present value of…

Q: a. January 1-Record the right-of-use asset. b. January 1-Record the first lease payment. c. December…

A: Lease is a contract under which one party agrees to make lump sum payment or a series of payments,…

Q: On January 1, 2020, Weber, Inc., entered into two lease contracts. The first lease contract was a…

A: Working Notes: 1. On inception of a finance lease, Lease liability will be recorded at The present…

Q: Current Attempt in Progress The following facts pertain to a non-cancelable lease agreement between…

A: Part 2:Explanation:Step 1: Calculate the initial lease liability by subtracting the guaranteed…

Q: The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and…

A: It is an arrangement between two parties in which one party (lessor) allows another party (lessee)…

Q: Lease term Annual lease payments beginning January 1, 2024 and at each December 31 thereafter…

A: Lease:A contract in which one party allows another party to use his/her property or asset in return…

Q: Classifying Leases The following separate scenarios relate to a 5-year lease, pertaining to…

A: In an operating lease, the lessor retains the risks and rewards associated with the ownership of the…

Q: A lease with the following terms: • Lease period: 5 years, beginning January 1, 2016.…

A: Lease: A lease is an agreement between two parties that specifies the conditions under which one…

Q: Determining Amounts in Operating Lease Kulver's Inc. leases equipment from Equip Inc. on January 1…

A: A lease liability refers to the obligation of a lessee to make regular payments to the lessor…

Q: Saved Help Seve On January 1, 2021, Obermax Corporation agreed to lease a piece of equipment to a…

A: The lessor are required to Debit the lease receivable at the fair value and credit the carrying…

Q: The following facts pertain to a non-cancelable lease agreement between Larkspur Leasing Company and…

A: The lease amortization schedule refers to the statement showing the details of the periodic payment,…

Q: Flint Company leased equipment to Land Company for a five-year period. Flint paid $112,716 for the…

A: An agreement of contract that is prepared to transfer the right to use the resources for a…

Q: Frontier Inc. enters into an 8-year lease contract to lease equipment with a useful life of 8 years.…

A: Journal Entries in the books of Frontier Ince( Lessor) Date Particulars Dr Cr Jan-1,2020…

Q: The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and…

A: Solution Working note - Present value of minimum lease payment = (Annual lease Payment *PVAD for 9%…

Q: The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and…

Q: Applying New Lease Accounting Standards for Operating Leases On January 1 of the current year, CCH…

A: Lease accounting:Generally lease accounting is a process organizations uses to record the financial…

Q: The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and…

A: Journal entry: It is the first step of recording transactions of a company. Before this, no other…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Accounting for Leases Using Finance and Operating Lease Methods
Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms:
Annual lease payment: $770,000
Term of lease: 5 years
Interest rate: 4%
Lease commences on January 1, 2023
Payments are made on December 31 of each year in the lease term
For parts a and b:
a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease.
b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease.
Operating Lease
Finance Lease
b. Operating lease:
Date
Jan. 1, 2023
Account
To record the start of the operating lease.
Dec. 31, 2023
To record the lease payment.
Dec. 31, 2023
To record the lease expense.
Dec. 31, 2024
To record the lease payment.
Dec. 31, 2024
To record the lease expense.
> > > > > > > > > > > >
Debit
Credit

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define Journal Entries

VIEW

Step 2: Calculation of PV of lease payments:

VIEW

Step 3: Preparation of journal entries to show the effects for Core Co:

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement.
Finance Lease At the beginning of the year, Cazenovia, Inc. entered into a five-year lease for equipment that was valued at $95,000. The company will be required to make annual lease payments of $22,000 for 5 years at year-end. The implicit interest rate is 5% and the company classified the lease as a finance lease. What is the balance sheet value of the lease asset and the lease liability? Round answer to the nearest whole number. $ 95,248 How much is interest expense in the first year? What is the reduction in the lease liability in the first year? Round answers to the nearest whole number. Interest expense for first year $ 4,762 Reduction of lease liability What is the total expense if straight-line amortization is used for the leased asset? Round answer to the nearest whole number. $ 0
2...new.continue...c The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Crane Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. Suppose Crane received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset $enter a…
Provide all journal entries that Kelly K. inc. will record over the whole term of the lease.
Classifying Leases The following separate scenarios relate to a 5-year lease, pertaining to equipment with a fair value of $50,000. Assume in all scenarios that payments are made at the beginning of the period. 1. Lease payments include a fixed payment of $10,000 per year. 2. Lease payments include a fixed payment of $10,000 per year, plus $500 for insurance and $600 for a maintenance contract. 3. Lease payments will be $10,000 in the first year and will increase by 3% (calculated on the previous year's payment) for each of the following 4 years. 4. Lease payments will be $10,000 in the first year and will increase each of the following years by the increase in the CPI from the preceding year. The current CPI is 120 and is expected to increase to 122 at the end of the next year. 5. Lease payments will be $10,000 in the first year and will increase each of the following years by (a) the increase in the CPI from the preceding year, or (b) 3%, whichever is greater. The current CPI is 120…
dont give ansewr in image format
needed: lease liabilityright of use of assetdepreciation expenseplease use a table for explaining lease liab.
On July 1, 2020, Shroff Company leased a warehouse building under a 10-year lease agreement. The lease requires quarterly lease payments of $4,500. The first lease payment is due on September 30, 2020. The lease was reported as a finance lease using an 8% annual interest rate. a. Prepare the journal entry to record the commencement of the lease on July 1, 2020. b. Prepare the journal entries that would be necessary on September 30 and December 31, 2020. c. Post the entries from parts a and b in their appropriate T-accounts. d. Prepare a financial statement effects template to show the effects template to show the effects of the entries from parts a and b on the balance sheet and income statement.
Recording Operating Lease-Lessor Gomez Inc. leases a vehicle from CareMax Inc. on January 1 for a three-year period. Gomez agrees to make $9,600 annual payments beginning on January 1. Prepare the journal entries during the year for CareMax Inc. assuming that the fair value of the vehicle is $44,800 and it has a useful life of 6 years with no salvage value (depreciated using the straight-line method). CarMax Inc. appropriately classifies the lease as an operating lease. Note: Round your answers to the nearest whole dollar. Account Name Date Jan, 1 Dec. 31 Dec. 31 Check To record receipt of lease payment To record lease revenue + # To record depreciation → = → # Dr. 0 0 0 0 0 0 Cr. 0 0 0 0 0 0
Accounting for Leases (FSET) On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $18,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming 1. the lease is reported as an operating lease. II. the lease is reported as a finance lease. Note: Use negative signs with your answers, when appropriate. Note: Select "NA" as your answer if a part of the accounting equation is not affected. to the nearest • Note: Round answers to the nearest whole dollar. 1. Operating Lease: II. Finance Lease: Operating lease commences Lease payment. Transaction Record lease expense and changes to asset and liability.…
Determining Amounts in Operating Lease-Lessee Kulver's Inc. leases equipment from Equip Inc. on January 1 under a 3-year operating lease. Kulver's agrees to pay Equip Inc. $15,000 annually with the first payment due on January 1. As an incentive for Kulver's to sign the lease by January 1, Equip Inc. paid Kulver's Inc. $700. Kulver's also incurred legal fees for the review of the lease agreement ($200) and salaries for employees involved in negotiating the lease ($1,300). Assuming an incremental borrowing rate of 7% for Kulver's Inc., determine the value of the lease liability and the right-of- use asset on January 1 for Kulver's. Note: Round your answers to the nearest whole dollar. Lease liability $ 11,620 X Right-of-use asset $ 41,620✔ Check
Mining Type of Lease and Subsequent Accounting Instructions On January 1, 2016, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: Chart of Accounts Next Level General Journal • The lease is noncancelable and has a term of 8 years. • The annual rentals are $39,200, payable at the beginning of each year. The interest rate implicit in the lease is 11%. Anderson agrees to pay all executory costs and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2024. • The cost of the equipment to the lessor is $145,500, and the fair retail value is approximately $223,900. The lessor incurs no material initial direct costs. EE The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. • The lessor estimates that the fair value is expected to be…