Brandt Machinery Company manufactures and sells or leases various types of farming equipment. On 1/1/24, Brandt leased a large plowing system to Flash Farms. Data relating to the lease follow: Cost of equipment to Brandt Fair market value of equipment at 1/1/24 Useful life of equipment Lease term Residual value at the end of the lease (guaranteed by Flash) Residual value expected by Flash Implicit and incremental interest rates $102,000 $142,500 8 years 5 years $18,000 $13,500 8% $3,000 Initial direct costs incurred by Flash in negotiation Both the lessor and lessee use straight-line depreciation and have accounting periods that end on 12/31. Required: a. b. C. d. Calculate the yearly payment that Brandt will charge Flash under this lease agreement if payments are made on 1/1 of each year, beginning 1/1/24. Construct the lease amortization table and prepare all journal entries that would be made by Brandt (lessor) during 2024 and 2025 relating to this lease. Construct the lease amortization table and prepare all journal entries that would be made by Flash (lessee) during 2024 and 2025 relating to this lease. Prepare the journal entries made by both Brandt and Flash with respect to the lease termination if the actual residual value of the computer equipment is $15,000.
Brandt Machinery Company manufactures and sells or leases various types of farming equipment. On 1/1/24, Brandt leased a large plowing system to Flash Farms. Data relating to the lease follow: Cost of equipment to Brandt Fair market value of equipment at 1/1/24 Useful life of equipment Lease term Residual value at the end of the lease (guaranteed by Flash) Residual value expected by Flash Implicit and incremental interest rates $102,000 $142,500 8 years 5 years $18,000 $13,500 8% $3,000 Initial direct costs incurred by Flash in negotiation Both the lessor and lessee use straight-line depreciation and have accounting periods that end on 12/31. Required: a. b. C. d. Calculate the yearly payment that Brandt will charge Flash under this lease agreement if payments are made on 1/1 of each year, beginning 1/1/24. Construct the lease amortization table and prepare all journal entries that would be made by Brandt (lessor) during 2024 and 2025 relating to this lease. Construct the lease amortization table and prepare all journal entries that would be made by Flash (lessee) during 2024 and 2025 relating to this lease. Prepare the journal entries made by both Brandt and Flash with respect to the lease termination if the actual residual value of the computer equipment is $15,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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