Company A (ksson) has reached a lease agreement with Company B (lessor) to lease a new carpel weaving machine beginning January 1, Year 1 The lease agreement contains the following information The lease is for five years, requiring annual payments of $10,355.57 at the beginning of the year. The weaving machine has a fair value at the beginning of the lease of $50,000; an estimated economic Ife of five years; and a guaranteed residual value of $2,500 (Company A expects that the value will be greater). • Present value of the weaving machine is $47,945.18. • There are no renewal options. At the end of the lease, the weaving machine will be returned to Company B. • Company A depreciates similar equipment that it purchases on a straight line basis. Company 5 sets the annual lease rate at 5% and Company A is aware of the rate • The lease is a finance lease. COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease Payment Date January 1, Year 1 January 1, Year 1 January 1, Year 2 10,355.67 January 1, Year 3 10,355.67 January 1, Year 4 10,355.57 January 1, Year 5 10,355.57 $10,355.57 $51,777.83 Interest Reduction of Lease Liability SO.DO 1,503.58 8,851.98 1,149.51 9,206.06 781.26 9,574.30 398.29 9,957.27 $3,832.64 $10,355.57 $47,945.18 Lease Liability $47,945.18 37,589.62 28,737.64 19,531.58 9,957.27 0.00 What is the journal entry on January 1, Year 1 to record the finance lease on Company A's books? Debit $10,355.57 to amortization expense and Credit $10,355.57 to a non-current asset account Debit $47,945.18 to a non-current asset account and Credit $47,945,18 to a non-current liability account Debit $50,000 to a non-current asset account and Credit $50,000 to a non-current liability account Debit $51,777.83 to a current asset account and Credit $51,777.83 to a current liability account

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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6
Company A (lessee) has reached a lease agreement with Company B (assor) to kase a new carpet weaving machine beginning January 1, Year 1. The lease agreement contains the following information
• The lease is for five years, requiring annual payments of $10,355.67 at the beginning of the year.
• The weaving machine has a fair value at the beginning of the lease of $50,000; an estimated economic life of five years; and a guaranteed residual value of $2,500 (Company A expects that the value will be greater).
• Present value of the weaving machine is $47,945.18.
• There are no renewal options. At the end of the lease, the weaving machine will be returned to Company B.
• Company A depreciates similar equipment that it purchases on a straight-line basis.
• Company B sels the annual lease rate al 5% and Company A is aware of the rate.
• The lease is a finance lease.
COMPANY A
LEASE AMORTIZATION SCHEDULE
ANNUITY-DUE BASIS
Annual Lease
Payment
Date
January 1, Year 1
January 1, Year 1
January 1, Year 2 10,355.57
January 1, Year 3 10,355.57
January 1, Year 4 10,355.57
January 1, Year 5 10,355.57
$10,355.57
$51,777.83
Interest
Reduction of
Lease Liability
$10,355.57
50.00
1,503.58
8,851.98
1,149.51 9,206.06
781.26 9,574.30
398.29 9,957.27
$3,832.64
$47,945.18
Lease
Liability
$47,945.18
37,589.62
28,737.64
19,531.58
9,957.27
0.00
What is the journal entry on January 1, Year 1 to record the finance lease on Company A's books?
Debit $10,355.57 to amortization expense and Credit $10,355.57 to a non-current asset account
Debit $47,945.18 to a non-current asset account and Credit $47,945.18 to a non-current liability account
O Debit $50,000 to a non-current asset account and Credit $50,000 to a non-current liability account
Debit $51,777.83 to a current asset account and Credit $51,777.83 to a current liability account
Transcribed Image Text:6 Company A (lessee) has reached a lease agreement with Company B (assor) to kase a new carpet weaving machine beginning January 1, Year 1. The lease agreement contains the following information • The lease is for five years, requiring annual payments of $10,355.67 at the beginning of the year. • The weaving machine has a fair value at the beginning of the lease of $50,000; an estimated economic life of five years; and a guaranteed residual value of $2,500 (Company A expects that the value will be greater). • Present value of the weaving machine is $47,945.18. • There are no renewal options. At the end of the lease, the weaving machine will be returned to Company B. • Company A depreciates similar equipment that it purchases on a straight-line basis. • Company B sels the annual lease rate al 5% and Company A is aware of the rate. • The lease is a finance lease. COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease Payment Date January 1, Year 1 January 1, Year 1 January 1, Year 2 10,355.57 January 1, Year 3 10,355.57 January 1, Year 4 10,355.57 January 1, Year 5 10,355.57 $10,355.57 $51,777.83 Interest Reduction of Lease Liability $10,355.57 50.00 1,503.58 8,851.98 1,149.51 9,206.06 781.26 9,574.30 398.29 9,957.27 $3,832.64 $47,945.18 Lease Liability $47,945.18 37,589.62 28,737.64 19,531.58 9,957.27 0.00 What is the journal entry on January 1, Year 1 to record the finance lease on Company A's books? Debit $10,355.57 to amortization expense and Credit $10,355.57 to a non-current asset account Debit $47,945.18 to a non-current asset account and Credit $47,945.18 to a non-current liability account O Debit $50,000 to a non-current asset account and Credit $50,000 to a non-current liability account Debit $51,777.83 to a current asset account and Credit $51,777.83 to a current liability account
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