Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract stipulates a lease term of 5 years, with equal annual rental payments of $8,880 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $48,000, a book value of $43,000, and a useful life of 8 years. At the end of the lease term, Blossom expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Assuming Blossom wants to earn a 5% return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January 1, 2025. (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 O for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,275.)
Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract stipulates a lease term of 5 years, with equal annual rental payments of $8,880 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $48,000, a book value of $43,000, and a useful life of 8 years. At the end of the lease term, Blossom expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Assuming Blossom wants to earn a 5% return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January 1, 2025. (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 O for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,275.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Dineshbhai
Transcribed Image Text:Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract stipulates a lease term of 5 years,
with equal annual rental payments of $8,880 at the end of each year. Ownership does not transfer at the end of the lease term, there is
no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $48,000, a book value of $43,000,
and a useful life of 8 years. At the end of the lease term, Blossom expects the residual value of the asset to be $12,000, and this amount
is guaranteed by a third party.
Assuming Blossom wants to earn a 5% return on the lease and collectibility of the lease payments is probable, record its journal entry
at the commencement of the lease on January 1, 2025. (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 o for the
amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places,
e.g. 5,275.)
Click here to view factor tables.
Account Titles and Explanation
Lease Receivable
Leased Asset
Lease Revenue
Debit
Credit
43000
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