Delray Leasing Company signs an agreement on January 1, 2025, to lease equipment to Blue Company. The following information relates to this agreement. Assume that the expected residual value at the end of the lease is $24,700, such that the payments are $28,222.47. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated economic life of 6 years. The fair value of the asset at January 1, 2025, is $125,400. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,700, none of which is guaranteed. The agreement requires equal annual rental payments of $28,222.47 to the lessor, beginning on January 1, 2025. The lessee's incremental borrowing rate is 6%. The lessor's implicit rate is 5% and is unknown to the lessee. Blue uses the straight-line depreciation method for all equipment. Click here to view factor tables. Prepare all of the journal entries for the lessee for 2025 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 2 decimal places, e.g. 5,265.25. List all debit entries before credit entries. Credit account titles are automatically indented when 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. Record journal entries in the order presented in the problem.)
Delray Leasing Company signs an agreement on January 1, 2025, to lease equipment to Blue Company. The following information relates to this agreement. Assume that the expected residual value at the end of the lease is $24,700, such that the payments are $28,222.47. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated economic life of 6 years. The fair value of the asset at January 1, 2025, is $125,400. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,700, none of which is guaranteed. The agreement requires equal annual rental payments of $28,222.47 to the lessor, beginning on January 1, 2025. The lessee's incremental borrowing rate is 6%. The lessor's implicit rate is 5% and is unknown to the lessee. Blue uses the straight-line depreciation method for all equipment. Click here to view factor tables. Prepare all of the journal entries for the lessee for 2025 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 2 decimal places, e.g. 5,265.25. List all debit entries before credit entries. Credit account titles are automatically indented when 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. Record journal entries in the order presented in the problem.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Hrd.4
Transcribed Image Text:Delray Leasing Company signs an agreement on January 1, 2025, to lease equipment to Blue Company. The following information
relates to this agreement. Assume that the expected residual value at the end of the lease is $24,700, such that the payments are
$28,222.47.
1.
2.
3.
4.
5.
6.
The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated economic life of 6
years.
The fair value of the asset at January 1, 2025, is $125,400.
The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of
$24,700, none of which is guaranteed.
The agreement requires equal annual rental payments of $28,222.47 to the lessor, beginning on January 1, 2025.
The lessee's incremental borrowing rate is 6%. The lessor's implicit rate is 5% and is unknown to the lessee.
Blue uses the straight-line depreciation method for all equipment.
Click here to view factor tables.
Prepare all of the journal entries for the lessee for 2025 to record the lease agreement, the lease payments, and all expenses related to
this lease. Assume the lessee's annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as
displayed in the factor table provided and round answers to 2 decimal places, e.g. 5,265.25. List all debit entries before
credit entries. Credit account titles are automatically indented when 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. Record journal entries in the order
presented in the problem.)
Transcribed Image Text:Prepare all of the journal entries for the lessee for 2025 to record the lease agreement, the lease payments, and all expenses related to
this lease. Assume the lessee's annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as
displayed in the factor table provided and round answers to 2 decimal places, e.g. 5,265.25. List all debit entries before
credit entries. Credit account titles are automatically indented when 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. Record journal entries in the order
presented in the problem.)
Date
1/1/25
1/1/25
12/31/25 #
Account Titles and Explanation
Right-of-Use Asset
Lease Liability
(To record the lease)
Lease Liability
Cash
(To record the first lease payment)
Lease Expense
Lease Liability
Right-of-Use Asset
Debit
153,863.83
28,222.47
28,222.47
Credit
153,863.83
28,222.47
7,538.48
20,683.99
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