In 2019, Vaughn 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, Vaughn 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 $ 1,000,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $ 400,000 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. Periods   For an Ordinary Annuity of $1 at 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       Assuming that the present value of terminal facilities and related obligation at January 1, 2020, was $ 9,544,263, prepare journal entries for Vaughn Trucking to record the following: (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 125.) (1)   Cash payment to the lessor on January 1, 2022. (2)   Amortization of the cost of the leased properties for 2022, using the straight-line method and assuming a zero salvage value. (3)   Accrual of interest expense at December 31, 2022.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
In 2019, Vaughn 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, Vaughn 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 $ 1,000,000 are payable to the lessor on January 1 of each of the first 10 years of the lease term. Advance rental payments of $ 400,000 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.

Periods
 
For an Ordinary
Annuity of $1 at 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  
 
 
Assuming that the present value of terminal facilities and related obligation at January 1, 2020, was $ 9,544,263, prepare journal entries for Vaughn Trucking to record the following: (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 125.)

(1)   Cash payment to the lessor on January 1, 2022.
(2)   Amortization of the cost of the leased properties for 2022, using the straight-line method and assuming a zero salvage value.
(3)   Accrual of interest expense at December 31, 2022.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Accounting for Leases
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education