Blossom, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $25,000 from Crane Corporation. The agreement stipulates the following. Rental payments of $5,599 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. Blossom must reimburse Crane each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $700, though these costs vary from year to year. Blossom must make a payment of $500 with the rental payment each period to cover the insurance Crane has on the warehouse. Blossom paid legal fees of $1,000 in executing the lease. Assuming Blossom's incremental borrowing rate is 6% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Blossom. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.) Click here to view factor tables. Account Titles and Explanation Debit Credit
Blossom, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $25,000 from Crane Corporation. The agreement stipulates the following. Rental payments of $5,599 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. Blossom must reimburse Crane each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $700, though these costs vary from year to year. Blossom must make a payment of $500 with the rental payment each period to cover the insurance Crane has on the warehouse. Blossom paid legal fees of $1,000 in executing the lease. Assuming Blossom's incremental borrowing rate is 6% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Blossom. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.) Click here to view factor tables. Account Titles and Explanation Debit Credit
Chapter4: Income Exclusions
Section: Chapter Questions
Problem 76IIP
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Transcribed Image Text:Blossom, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $25,000 from Crane
Corporation. The agreement stipulates the following.
Rental payments of $5,599 are to be made at the start of each year of the 5-year lease. No residual value is expected at the
end of the lease.
Blossom must reimburse Crane each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes
was $700, though these costs vary from year to year.
Blossom must make a payment of $500 with the rental payment each period to cover the insurance Crane has on the
warehouse.
Blossom paid legal fees of $1,000 in executing the lease.
Assuming Blossom's incremental borrowing rate is 6% and the rate implicit in the lease is unknown, prepare the journal entry to record
the initial lease liability and right-of-use asset for Blossom. (List all debit entries before credit entries. Credit account titles are
automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table
provided and round final answers to 0 decimal places, e.g. 5,275.)
Click here to view factor tables.
Account Titles and Explanation
Debit
Credit
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