On January 1, Year 1, Montana Mining Equipment LLC purchased a new excavator for $1.5 million with an expected 20-year useful life and no residual value. Shortly thereafter, this equipment was leased by Shasta Mining Corp. who will make annual lease payments on January 1 of each year for $300,000, starting on January 1, Year 1. The lease term is 16 years with no purchase option. This equipment reverts back to Montana Mining at the end of the lease. The estimated residual value at the end of the lease term is $500,000 and is guaranteed by Shasta Mining who expects the estimated residual value at the end of the lease term to be $500,000. The implicit interest rate of the lease is 5% and is known by Shasta. a) This problem pertains to the LESSEE. What type of lease is this? b) Who is the Lessor? c) Who is the Lessee? d) What is the present value of the lease payments? Note: Round answer to the nearest whole number. $ 0 e) Prepare the appropriate journal entries for the LESSEE from the beginning of the lease through the end of Year 1. Note: Round answers to the nearest whole number, if applicable. Jan 01, Year 1 Account Debit Credit 0 0 0 0 To record lease on commencement date. 0 0 e) Prepare the appropriate journal entries for the LESSEE from the beginning of the lease through the end of Year 1. Note: Round answers to the nearest whole number, if applicable. Account Debit Credit Jan 01, Year 1 0 0 0 0 To record lease on commencement date. 0 0 0 0 To record lease payment. Dec 31, Year 1 To record interest expense. To record amortization. Please answer all parts of the question. 0 0 0 0 0 0 ✓ 0 0

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

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Question

On January 1, Year 1, Montana Mining Equipment LLC purchased a new excavator for $1.5 million with an expected 20-year useful life and no residual value. Shortly thereafter, this equipment was leased by Shasta Mining Corp. who will make annual lease payments on January 1 of each year for $300,000, starting on January 1, Year 1. The lease term is 16 years with no purchase option. This equipment reverts back to Montana Mining at the end of the lease. The estimated residual value at the end of the lease term is $500,000 and is guaranteed by Shasta Mining who expects the estimated residual value at the end of the lease term to be $500,000. The implicit interest rate of the lease is 5% and is known by Shasta.

a) This problem pertains to the LESSEE. What type of lease is this?
Answer

b) Who is the Lessor?
Answer

c) Who is the Lessee?
Answer

d) What is the present value of the lease payments?
Note: Round answer to the nearest whole number.
$Answer

e) Prepare the appropriate journal entries for the LESSEE from the beginning of the lease through the end of Year 1.
Note: Round answers to the nearest whole number, if applicable.

	Account	Credit
Jan 01, Year 1		Answer
		Answer
	To record lease on commencement date.
		Answer
		Answer
	To record lease payment.
Dec 31, Year 1		Answer
		Answer
	To record interest expense.
		Answer
		Answer
	To record amortization.

On January 1, Year 1, Montana Mining Equipment LLC purchased a new excavator for $1.5 million with an expected 20-year useful life and no residual value.
Shortly thereafter, this equipment was leased by Shasta Mining Corp. who will make annual lease payments on January 1 of each year for $300,000, starting on
January 1, Year 1. The lease term is 16 years with no purchase option. This equipment reverts back to Montana Mining at the end of the lease. The estimated
residual value at the end of the lease term is $500,000 and is guaranteed by Shasta Mining who expects the estimated residual value at the end of the lease
term to be $500,000. The implicit interest rate of the lease is 5% and is known by Shasta.
a) This problem pertains to the LESSEE. What type of lease is this?
b) Who is the Lessor?
c) Who is the Lessee?
d) What is the present value of the lease payments?
Note: Round answer to the nearest whole number.
$ 0
e) Prepare the appropriate journal entries for the LESSEE from the beginning of the lease through the end of Year 1.
Note: Round answers to the nearest whole number, if applicable.
Jan 01, Year 1
Account
Debit
Credit
0
0
0
0
To record lease on commencement date.
0
0

e) Prepare the appropriate journal entries for the LESSEE from the beginning of the lease through the end of Year 1.
Note: Round answers to the nearest whole number, if applicable.
Account
Debit
Credit
Jan 01, Year 1
0
0
0
0
To record lease on commencement date.
0
0
0
0
To record lease payment.
Dec 31, Year 1
To record interest expense.
To record amortization.
Please answer all parts of the question.
0
0
0
0
0
0
✓
0
0

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