**Kaan Co. Lease Agreement Educational Example**Kaan Co. signed a 4-year non-cancellable lease agreement for a machine on January 1, 2021. The lease agreement requires a lease payment of $42,000 beginning on December 31, 2021. The lessee’s incremental borrowing rate is 12%. The net present value of the payments is $151,400.60. The machine has an estimated useful life of 5 years with no residual value.**Journal Entries and Calculations:****a. Recognize the leased asset and lease liability (January 1, 2021):**- Debit: Right-of-Use Asset $151,400.60- Credit: Lease Liability $151,400.60**b. Journal entry for the lease payment (December 31, 2022 - end of the second year):**- Debit: Lease Liability $42,000- Credit: Cash $42,000**c. Depreciation entry for the leased asset (December 31, 2022):**- Debit: Depreciation Expense $30,280.12- Credit: Accumulated Depreciation $30,280.12 *(Note: Depreciation Expense calculated as $151,400.60 / 5 years)***d. Interest expense for the leasing transaction (year 2023 – third year, do not make any journal entry, only show calculation and interest expense):**Calculation:1. Beginning Lease Liability for 2023 = $151,400.60 - (2 x $42,000) = $67,400.602. Interest Expense = $67,400.60 x 12% = $8,088.072Interest Expense for 2023: $8,088.072

“Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Kaan Co. signed a 4-year non-cancellable lease agreement for a machine on January 1, 2021. The lease agreement requires a lease payment of 42.000 s beginning on 31 December 2021. The lessee's incremental borrowing rate is %12. The net present value of the payments is 151.400,60 S. The machine has an estimated useful life of 5 years with no residual value. a. Make the necessary journal entry to recognize the leased asset and lease liability on January 1, 2021. b. Make the journal entry for the lease payment on 31 December 2022 (end of the second year). c. Make the depreciation entry for the leased asset on 31 December 2022. pas d. Calculate the interest expense for the leasing transaction for the year 2023 (third year, do not make any journal entry, only show the calculation and interest expense). 4

Kaan Co. signed a 4-year non-cancellable lease agreement for a machine on January 1, 2021. The lease agreement requires a lease payment of 42.000 s beginning on 31 December 2021. The lessee's incremental borrowing rate is %12. The net present value of the payments is 151.400,60 S. The machine has an estimated useful life of 5 years with no residual value. a. Make the necessary journal entry to recognize the leased asset and lease liability on January 1, 2021. b. Make the journal entry for the lease payment on 31 December 2022 (end of the second year). c. Make the depreciation entry for the leased asset on 31 December 2022. pas d. Calculate the interest expense for the leasing transaction for the year 2023 (third year, do not make any journal entry, only show the calculation and interest expense). 4

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: MWANJOMBE Limited entered into a four year lease on 1 January 2022 for a machine. Rentals are TZS…

A: Income statement:An income statement stands for the statement that shows profits and loss of the…

Q: Assume that IBM leased equipment that was carried at a cost of $195,000 to Cullumber Company. The…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: Spartan Corporation leased a building from Dalton Brothers Inc. Dalton Brothers spent $20 million to…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: The Metro Company (lessee) leased equipment from Denver Industries on January 1, 2021. Denver…

Q: Huskies Together Company leased equipment from Caterpillar, beginning on December 31, 2020. The…

A: For Year 2020 Journal Entries - Huskies Together Company Date Particulars Debit Credit…

Q: On December 31, 2024. Skysong Corporation signed a 5-year, non-cancelable lease for a machine. The…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: Moose purchased a machine for $420,000 and leased it to Acme on January 1, 2021. Lease…

A: • Lease: A lease is an agreement or contract in which one party (lessor) agrees to rent out an asset…

Q: Baillie Power leased high-tech electronic equipment from Courtney Leasing on January 1, 2021.…

A: A lease is defined as a contractual agreement incorporated between two business entities where one…

Q: MWANJOMBE Limited entered into a four year lease on 1 January 2022 for a machine. Rentals are TZS…

A: Income statement:An income statement stands for the statement that shows profits and loss of the…

Q: Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement

A: The contract between lessor and lessee to use the asset for a certain period of time, and for a…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

**Kaan Co. Lease Agreement Educational Example**

Kaan Co. signed a 4-year non-cancellable lease agreement for a machine on January 1, 2021. The lease agreement requires a lease payment of $42,000 beginning on December 31, 2021. The lessee’s incremental borrowing rate is 12%. The net present value of the payments is $151,400.60. The machine has an estimated useful life of 5 years with no residual value.

**Journal Entries and Calculations:**

**a. Recognize the leased asset and lease liability (January 1, 2021):**
- Debit: Right-of-Use Asset $151,400.60
- Credit: Lease Liability $151,400.60

**b. Journal entry for the lease payment (December 31, 2022 - end of the second year):**
- Debit: Lease Liability $42,000
- Credit: Cash $42,000

**c. Depreciation entry for the leased asset (December 31, 2022):**
- Debit: Depreciation Expense $30,280.12
- Credit: Accumulated Depreciation $30,280.12
*(Note: Depreciation Expense calculated as $151,400.60 / 5 years)*

**d. Interest expense for the leasing transaction (year 2023 – third year, do not make any journal entry, only show calculation and interest expense):**

Calculation:
1. Beginning Lease Liability for 2023 = $151,400.60 - (2 x $42,000) = $67,400.60
2. Interest Expense = $67,400.60 x 12% = $8,088.072

Interest Expense for 2023: $8,088.072

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Honour code

VIEW

Step 2: Define lease accounting

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

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

Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured theequipment at a cost of $200,000. The equipment has a fair value of $260,000.Information related to the lease appears below:Lease term 5 yearsFirst lease payment January 1, 2023Subsequent lease payments December 31, 2023, 2024, 2025, 2026Economic life of the equipment 6 yearsEstimated value of equipment at end of economic life $0Purchase option, reasonably expected to be exercised by Oscar $20,000Implicit and incremental borrowing rate 8% Prepare the entries to record the lease and the first payment for both the lessee and the lessor onJanuary 1, 2023.
Fitbit Ltd has leased a machine on the following terms:Date of entering lease 1 July 2019Duration of lease 5 yearsLife of asset 6 yearsUnguaranteed residual value $40,000Lease payments inception (at the start) $60,000Annual payments (5) $65,000Implied rate 11.0 % Required:Determine the Fair Value (rounded off) of the leased asset. (7 marks)
North Blue Company leased a new copier from Kixko Company on June 1, 2019, under a lease with the following information: Lease term 10 years Annual rental payable at the beginning of each lease year $45,000 Useful Life of machine 10 years Implicit interest rate 12% Present value factor for an annuity of 1 in advance for 10 periods at 12% 6.3282 Present Value factor for 1 for 10 periods at 12% 0.32197 North Blue has the option to purchase a machine on June 1, 2023, by paying $75,000, which approximates the fair value of the machine on the option exercise date. On May 1, 2019, North Blue should record a right-of-use asset in the amount of a.$284,769. b.$292,991. c.$450,000. d.$276,548.
Recording Lease ObligationsE17B. Business Application ▶ Soong Corporation has leased a piece of equipmentthat has a useful life of 12 years. This capital lease requires payments of $43,000 per yearfor 12 years. Soong currently is able to borrow money at a long-term interest rate of8 percent. (Round to the nearest dollar.)1. Calculate the present value of the lease.2. Prepare the journal entry to record the lease agreement.3. Prepare the journal entry to record depreciation of the equipment for the first yearusing the straight-line method.4. Prepare the journal entries to record the lease payments for the first two years.
SHOW WITH CLEAR DETAILS AND EXPLANATIONS SHOW ALL STEPS .