Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year. The fair value of the tractor is $100,000. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term. The tractor has a six-year economic life. Hatfield has an excellent credit rating. Star offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer. With which one of the following entries will Hatfield prepa
Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year. The fair value of the tractor is $100,000. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term. The tractor has a six-year economic life. Hatfield has an excellent credit rating. Star offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer. With which one of the following entries will Hatfield prepa
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms.
- Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.
- The fair value of the tractor is $100,000.
- The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
- The tractor has a six-year economic life.
- Hatfield has an excellent credit rating.
- Star offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer.
With which one of the following entries will Hatfield prepare to record the payment on December 31, 20X1?
Multiple Choice
-
DR Finance lease liability 16,379.74 DR Interest expense 10,000.00 CR Cash 26,379.74
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DR Finance lease liability 10,000.00 DR Interest expense 16,379.74 CR Cash 26,379.74
-
DR Finance lease liability 26,379.74 CR Cash 26,379.74
-
DR Interest expense 26,379.74 CR Cash 26,379.74
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