In 2019, Blue Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company's specifications on land owned by the company. On January 1, 202O, Blue Trucking took possession of the lease properties. Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 2020, with a bargain purchase option available upon expiration of the lease. The 20-year lease is effective for the period January 1, 2020, through December 31, 2039. Rental payments of $968,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $387,200 are due on January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on December 31, 2039. The lease was negotiated to assure the lessor a 6% rate of return. Selected present value factors are as follows. For an Ordinary Annuity of $1 at Periods 6% For $1 at 6% 1 0.943396 0.943396 1.833393 0.889996 8 6.209794 0.627412 6.801692 0.591898 10 7.360087 0.558395 19 11.158116 0.330513 20 11.469921 0.311805 (1) Cash payment to the lessor on January 1, 2022. Amortization of the cost of the leased properties for 2022, using the straight-line method and assuming a zero salvage (2) value. (3) Accrual of interest expense at December 31, 2022. No. Account Titles and Explanation Debit Credit 1. Amortization Expense Right-of-Use Asset 2. Amortization Expense Right-of-Use Asset (To record annual amortization expense on leased assets.) 3. Interest Expense Interest Payable (To record interest accrual on outstanding debt.)
In 2019, Blue Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company's specifications on land owned by the company. On January 1, 202O, Blue Trucking took possession of the lease properties. Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 2020, with a bargain purchase option available upon expiration of the lease. The 20-year lease is effective for the period January 1, 2020, through December 31, 2039. Rental payments of $968,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $387,200 are due on January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on December 31, 2039. The lease was negotiated to assure the lessor a 6% rate of return. Selected present value factors are as follows. For an Ordinary Annuity of $1 at Periods 6% For $1 at 6% 1 0.943396 0.943396 1.833393 0.889996 8 6.209794 0.627412 6.801692 0.591898 10 7.360087 0.558395 19 11.158116 0.330513 20 11.469921 0.311805 (1) Cash payment to the lessor on January 1, 2022. Amortization of the cost of the leased properties for 2022, using the straight-line method and assuming a zero salvage (2) value. (3) Accrual of interest expense at December 31, 2022. No. Account Titles and Explanation Debit Credit 1. Amortization Expense Right-of-Use Asset 2. Amortization Expense Right-of-Use Asset (To record annual amortization expense on leased assets.) 3. Interest Expense Interest Payable (To record interest accrual on outstanding debt.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In 2019, Blue Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight
storage facilities. The buildings were erected to the company's specifications on land owned by the company. On January 1, 2020,
Blue Trucking took possession of the lease properties.
Although the terminals have a composite useful life of 40 years, the non-cancelable lease runs for 20 years from January 1, 202o,
with a bargain purchase option available upon expiration of the lease.
The 20-year lease is effective for the period January 1, 2020, through December 31, 2039. Rental payments of $968,000 are
payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $387,200 are due on
January 1 for each of the last 10 years of the lease. The company has an option to purchase all of these leased facilities for $1 on
December 31, 2039. The lease was negotiated to assure the lessor a 6% rate of return.
Selected present value factors are as follows.
For an Ordinary
Annuity of $1 at
Periods
6%
For $1 at 6%
1
0.943396
0.943396
2
1.833393
0.889996
8
6.209794
0.627412
9
6.801692
0.591898
10
7.360087
0.558395
19
11.158116
0.330513
20
11.469921
0.311805
(1)
Cash payment to the lessor on January 1, 2022.
Amortization of the cost of the leased properties for 2022, using the straight-line method and assuming a zero salvage
(2)
value,
(3)
Accrual of interest expense at December 31, 2022.
No. Account Titles and Explanation
Debit
Credit
1.
Amortization Expense
Right-of-Use Asset
2.
Amortization Expense
Right-of-Use Asset
(To record annual amortization expense on leased assets.)
3.
Interest Expense
Interest Payable
(To record interest accrual on outstanding debt.)
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