Cullumber Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years, with equal annual rental payments of $5,300 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for $3,000, which Cullumber is reasonably certain it will exercise as it believes the fair value of the machinery will be at least $4,000. The machinery has a useful life of 10 years and a fair value of $35,000. The implicit rate of the lease is not known to Cullumber. Cullumber’s incremental borrowing rate is 7%. Prepare Cullumber's 2020 journal entries: 1) To record lease liability 2) To record lease payment 3) To record interest expense
Cullumber Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years, with equal annual rental payments of $5,300 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for $3,000, which Cullumber is reasonably certain it will exercise as it believes the fair value of the machinery will be at least $4,000. The machinery has a useful life of 10 years and a fair value of $35,000. The implicit rate of the lease is not known to Cullumber. Cullumber’s incremental borrowing rate is 7%.
Prepare Cullumber's 2020
1) To record lease liability
2) To record lease payment
3) To record interest expense
4) To record amortization of the right of use asset.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
