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It covers 3 years of the equipment's 8-year useful life, an the beginning of each year, and BestHuskies' increment

It covers 3 years of the equipment's 8-year useful life, an the beginning of each year, and BestHuskies' increment

FINANCIAL ACCOUNTING
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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BestHuskies Corporation leases equipment from Falls Company on January 1, 2021. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. Assume the annual lease payment is $35,000 at the beginning of each year, and BestHuskies' incremental borrowing rate is 6%, which is the same as the lessor's implicit rate. Prepare BestHuskies' journal entries on January 1, 2021, and December 31, 2021. Show your work for partial credits.
Transcribed Image Text:BestHuskies Corporation leases equipment from Falls Company on January 1, 2021. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. Assume the annual lease payment is $35,000 at the beginning of each year, and BestHuskies' incremental borrowing rate is 6%, which is the same as the lessor's implicit rate. Prepare BestHuskies' journal entries on January 1, 2021, and December 31, 2021. Show your work for partial credits.
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