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Ivanhoe Corporation ("Ivanhoe") manufactures equipment with an estimated economic life of 12 years. On May 30, 2023, Ivanhoe leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follow Equipment has a fair value and cost at the inception of the lease: $213, 693. Guaranteed residual value: $36,000. Annual lease payment, due at beginning of each year: $30, 750. Lease contains no renewal options and the equipment reverts to Ivanhoe at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 11%. Gadget uses straight-line depreciation for similar equipment that it owns. Ivanhoe has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both

Ivanhoe Corporation ("Ivanhoe") manufactures equipment with an estimated economic life of 12 years. On May 30, 2023, Ivanhoe leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follow Equipment has a fair value and cost at the inception of the lease: $213, 693. Guaranteed residual value: $36,000. Annual lease payment, due at beginning of each year: $30, 750. Lease contains no renewal options and the equipment reverts to Ivanhoe at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 11%. Gadget uses straight-line depreciation for similar equipment that it owns. Ivanhoe has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both

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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Ivanhoe Corporation ("Ivanhoe") manufactures equipment with an estimated economic life of 12 years. On May 30, 2023, Ivanhoe leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: Equipment has a fair value and cost at the inception of the lease: $213, 693. Guaranteed residual value: $36,000. . Annual lease payment, due at beginning of each year: $30, 750. Lease contains no renewal options and the equipment reverts to Ivanhoe at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 11%. Gadget uses straight line depreciation for similar equipment that it owns. Ivanhoe has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both companies follow ASPE.Prepare the journal entries for the lessee and lessor at May 30, 2023, the inception of the lease, and at December 31, 2023, which is the year end for both the lessee and lessor. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e. g. 5,275. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Interest and depreciation expense calculations are based on the nearest full month.) Lessee: ate Account Titles and Explanation Debit Credit (To record lease payment) Depreciation Expense Accumulated Depreciation Leased Equipment (To record interest) | (To record depreciation expense)
Transcribed Image Text:Ivanhoe Corporation ("Ivanhoe") manufactures equipment with an estimated economic life of 12 years. On May 30, 2023, Ivanhoe leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: Equipment has a fair value and cost at the inception of the lease: $213, 693. Guaranteed residual value: $36,000. . Annual lease payment, due at beginning of each year: $30, 750. Lease contains no renewal options and the equipment reverts to Ivanhoe at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 11%. Gadget uses straight line depreciation for similar equipment that it owns. Ivanhoe has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both companies follow ASPE.Prepare the journal entries for the lessee and lessor at May 30, 2023, the inception of the lease, and at December 31, 2023, which is the year end for both the lessee and lessor. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e. g. 5,275. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Interest and depreciation expense calculations are based on the nearest full month.) Lessee: ate Account Titles and Explanation Debit Credit (To record lease payment) Depreciation Expense Accumulated Depreciation Leased Equipment (To record interest) | (To record depreciation expense)
Prepare the journal entries for the lessee and lessor at May 30, 2023, the inception of the lease, and at December 31, 2023, which is the year end for both the lessee and lessor. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Interest and depreciation expense calculations are based on the nearest full month.) Lessee: Date Account Titles and Explanation 0, 2023 1, 2023 1, 2023 Right-of-Use Asset Lease Liability Cash (To record lease payment) Depreciation Expense Accumulated Depreciation - Leased Equipment (To record interest) (To record depreciation expense) Debit 213,693 Credit 30,750 182943
Transcribed Image Text:Prepare the journal entries for the lessee and lessor at May 30, 2023, the inception of the lease, and at December 31, 2023, which is the year end for both the lessee and lessor. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Interest and depreciation expense calculations are based on the nearest full month.) Lessee: Date Account Titles and Explanation 0, 2023 1, 2023 1, 2023 Right-of-Use Asset Lease Liability Cash (To record lease payment) Depreciation Expense Accumulated Depreciation - Leased Equipment (To record interest) (To record depreciation expense) Debit 213,693 Credit 30,750 182943
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