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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms.

 

  1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.
  2. The fair value of the tractor is $100,000.
  3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
  4. The tractor has a six-year economic life.
  5. Hatfield has an excellent credit rating.
  6. 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
  •  
    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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