Ayayai Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,151 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $9,900, a book value of $7,900, and Ayayai expects a residual value of $7,400 at the end of the lease term. Ayayai set the lease payments with the intent of earning a 4% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare all necessary journal entries for Kingbird in 2020 **Educational Content: Journal Entries for Kingbird - 2020****Objective:** Prepare all necessary journal entries for Kingbird in 2020.*Instructions: Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places (e.g., 5,275). Record journal entries in the order presented in the problem.*---**Journal Entries:**1. **Date: 1/1/20** - **Account Titles and Explanation:** - Debit: Right-of-Use Asset - \$3,687 - Credit: Lease Liability - \$3,687 - **Explanation:** - (To record the lease)2. **Date: 1/1/20** - **Account Titles and Explanation:** - Debit: Lease Liability - \$1,301 - Credit: Cash - \$1,301 - **Explanation:** - (To record lease payment)3. **Date: 12/31/20** - **Account Titles and Explanation:** - Debit: Lease Expense - \$1,301 - Credit: Right-of-Use Asset - \$1,158 - Credit: Lease Liability - \$143 - **Explanation:** - (To record lease adjustment at year-end)---**Summary:**This example illustrates the accounting treatment for recording lease transactions under the new leasing standards. It involves recognizing the Right-of-Use Asset and Lease Liability and adjusting for lease payments and expenses.**Note:** Always ensure to keep records in accordance with the prevailing accounting standards and principles.

The lease is an agreement where one party agrees to provide the right to use the asset to the lessee. The lessor charges the periodic lease payment from the lessee. The lease may be operating or financial, sales-type lease, etc.The preparation of journal entries is as follows: The formula snip is as follows:

Answered: Ayayai Corporation leased equipment to…

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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Ayayai Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,151 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $9,900, a book value of $7,900, and Ayayai expects a residual value of $7,400 at the end of the lease term. Ayayai set the lease payments with the intent of earning a 4% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare all necessary journal entries for Kingbird in 2020

**Educational Content: Journal Entries for Kingbird - 2020**

**Objective:** Prepare all necessary journal entries for Kingbird in 2020.

*Instructions: Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places (e.g., 5,275). Record journal entries in the order presented in the problem.*

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**Journal Entries:**

1. **Date: 1/1/20**

- **Account Titles and Explanation:**
- Debit: Right-of-Use Asset - \$3,687
- Credit: Lease Liability - \$3,687
- **Explanation:**
- (To record the lease)

2. **Date: 1/1/20**

- **Account Titles and Explanation:**
- Debit: Lease Liability - \$1,301
- Credit: Cash - \$1,301
- **Explanation:**
- (To record lease payment)

3. **Date: 12/31/20**

- **Account Titles and Explanation:**
- Debit: Lease Expense - \$1,301
- Credit: Right-of-Use Asset - \$1,158
- Credit: Lease Liability - \$143
- **Explanation:**
- (To record lease adjustment at year-end)

---

**Summary:**

This example illustrates the accounting treatment for recording lease transactions under the new leasing standards. It involves recognizing the Right-of-Use Asset and Lease Liability and adjusting for lease payments and expenses.

**Note:** Always ensure to keep records in accordance with the prevailing accounting standards and principles.

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