Krawczek Company will enter into a lease agreement with Heavy Equipment Company where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $26,400 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year Other important information includes the following . The fair value of the equipment is $180,000 . The applicable discount rate is an 8 percent annual rate. . The economic life of the asset is 10 years. • Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. . The asset is a standard piece of equipment. a. is the lease an operating lease or a financing lease? Operating lease c ⒸFinancing lease b. What will be the lease expense shown on the income statement at the end of year 1? Answer is complete but not entirely correct. Lease expense 102,790 c. What will be the interest expense shown on the income statement at the end of year 1? Note: Leave no cells blank-be certain to enter "0" wherever required. Answer is complete but not entirely correct. Interest expense (76.391)
Krawczek Company will enter into a lease agreement with Heavy Equipment Company where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $26,400 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year Other important information includes the following . The fair value of the equipment is $180,000 . The applicable discount rate is an 8 percent annual rate. . The economic life of the asset is 10 years. • Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. . The asset is a standard piece of equipment. a. is the lease an operating lease or a financing lease? Operating lease c ⒸFinancing lease b. What will be the lease expense shown on the income statement at the end of year 1? Answer is complete but not entirely correct. Lease expense 102,790 c. What will be the interest expense shown on the income statement at the end of year 1? Note: Leave no cells blank-be certain to enter "0" wherever required. Answer is complete but not entirely correct. Interest expense (76.391)
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...
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