Blossom Company, a machinery dealer, leased a machine to Crane Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2025. Blossom had purchased the machine during 2024 for $150,000. Collectibility of lease payments by Blossom is probable. Blossom set the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Blossom at the termination of the lease. Assume that Crane Corporation does not know the rate implicit in the lease used by Blossom, and Crane's incremental borrowing rate is 9%. In addition, assume that Crane incurs initial direct costs of $11,000.
Blossom Company, a machinery dealer, leased a machine to Crane Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2025. Blossom had purchased the machine during 2024 for $150,000. Collectibility of lease payments by Blossom is probable. Blossom set the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Blossom at the termination of the lease. Assume that Crane Corporation does not know the rate implicit in the lease used by Blossom, and Crane's incremental borrowing rate is 9%. In addition, assume that Crane incurs initial direct costs of $11,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hh1.
Transcribed Image Text:Blossom Company, a machinery dealer, leased a machine to Crane Corporation on January 1, 2025. The lease is for an 8-year period
and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2025.
Blossom had purchased the machine during 2024 for $150,000. Collectibility of lease payments by Blossom is probable. Blossom set
the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to
Blossom at the termination of the lease. Assume that Crane Corporation does not know the rate implicit in the lease used by Blossom,
and Crane's incremental borrowing rate is 9%. In addition, assume that Crane incurs initial direct costs of $11,000.
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Transcribed Image Text:Prepare all necessary journal entries for Crane for 2025. (List all debit entries before credit entries. Credit account titles are
automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and
enter o for the amounts. Round answers to O decimal places e.g. 5,275. Record journal entries in the order presented in the problem.)
Date
1/1/25
1/1/25
12/31/25
12/31/25
Account Titles and Explanation
Right-of-Use Asset
Lease Liability
Cash
(To record the lease)
Lease Liability
Cash
(To record the first lease payment)
(To record interest expense)
(To record amortization of the right-of-use asset)
Debit
|||||
Credit
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