On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions:•The lease is noncancelable and has a term of 8 years.•The annual rentals are $30,400, payable at the beginning of each year.•The interest rate implicit in the lease is 12%.•Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026.•The cost of the equipment to the lessor is $145,500, and the fair value is approximately $169,100.•Ballieu incurs no material initial direct costs.•It is probable that Ballieu will collect the lease payments.•Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $30,400 discounted at 12% is $169,138.21 (the $1 purchase option is ignored as immaterial).Required:1.Next Level Identify the classification of the lease transaction from Ballieu’s point of view.2.Prepare all the journal entries for Ballieu for the years 2019 and 2020. XChart of Accounts CHART OF ACCOUNTSBallieu CompanyGeneral Ledger ASSETS111Cash121Accounts Receivable122Lease Receivable123Equipment Leased to Others141Inventory152Prepaid Insurance181Equipment198Accumulated Depreciation LIABILITIES211Accounts Payable231Salaries Payable250Unearned Interest261Income Taxes Payable EQUITY311Common Stock331Retained Earnings REVENUE411Sales Revenue433Interest Income EXPENSES500Cost of Goods Sold511Insurance Expense512Utilities Expense521Salaries Expense532Bad Debt Expense540Interest Expense541Depreciation Expense559Miscellaneous Expenses910Income Tax Expense XGeneral JournalShaded cells have feedback. 2b. Prepare all the journal entries for Ballieu for the years 2019.General Journal InstructionsAll transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback.PAGE 1 GENERAL JOURNALScore: 55/101 DATEACCOUNT TITLEPOST. REF.DEBITCREDIT1 2 3 4 5 6 7 8 GENERAL JOURNALScore: 57/101POST. REFDEBITDATECREDITACCOUNT TITLE243,200.00Jan. 1Lease ReceivableCost of Goods Sold145,500.002169,138.21Sales Revenue3Unearned Interest74,061.794145,500.00Inventory5(being to record equipment taken on lease)6CashJan. 130,400.00730,400.00Lease Receivable8 GENERAL JOURNALScore: 57/101POST. REFDEBITDATECREDITACCOUNT TITLE243,200.00Jan. 1Lease ReceivableCost of Goods Sold145,500.002169,138.21Sales Revenue3Unearned Interest74,061.794145,500.00Inventory5(being to record equipment taken on lease)6CashJan. 130,400.00730,400.00Lease Receivable8

It will be classified as sale type finance lease transaction: a. The Lease term is for major part…

Answered: GENERAL JOURNAL Score: 57/101 POST. REF…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions:

•	The lease is noncancelable and has a term of 8 years.
•	The annual rentals are $30,400, payable at the beginning of each year.
•	The interest rate implicit in the lease is 12%.
•	Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026.
•	The cost of the equipment to the lessor is $145,500, and the fair value is approximately $169,100.
•	Ballieu incurs no material initial direct costs.
•	It is probable that Ballieu will collect the lease payments.
•	Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.

Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $30,400 discounted at 12% is $169,138.21 (the $1 purchase option is ignored as immaterial).

Required:

1.	Next Level Identify the classification of the lease transaction from Ballieu’s point of view.
2.	Prepare all the journal entries for Ballieu for the years 2019 and 2020.

Chart of Accounts

CHART OF ACCOUNTS

Ballieu Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
122	Lease Receivable
123	Equipment Leased to Others
141	Inventory
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Interest
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue
433	Interest Income

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

General Journal

Shaded cells have feedback.

2b. Prepare all the journal entries for Ballieu for the years 2019.

General Journal Instructions

All transactions on this page must be entered (except for post ref(s)) before you will receive Check My Work feedback.

PAGE 1

GENERAL JOURNAL

Score: 55/101

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8

GENERAL JOURNAL
Score: 57/101
POST. REF
DEBIT
DATE
CREDIT
ACCOUNT TITLE
243,200.00
Jan. 1
Lease Receivable
Cost of Goods Sold
145,500.00
2
169,138.21
Sales Revenue
3
Unearned Interest
74,061.79
4
145,500.00
Inventory
5
(being to record equipment taken on lease)
6
Cash
Jan. 1
30,400.00
7
30,400.00
Lease Receivable
8

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