Larkspur Inc. was incorporated in 2019 to operate as a financial service firm, with an accounting fiscal year ending April 30. Larkspur's primary product is a sophisticated online investment management system; its customers pay a fixed fee plus a usage charge for using the system. Larkspur has leased a large, GenX computer system from the manufacturer. The lease calls for a monthly rental of $24,500 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 14 years. All rentals are payable on the first day of the month beginning with April 1, 2020, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the GenX system. This lease is to be accounted for as a finance lease by Larkspur, and the asset will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Larkspur 6% per year (0.5% per month). Following is a schedule of the present value of an annuity due for selected periods discounted at 0.5% per period when payments are made at the beginning of each period. Periods Present Value of an Annuity Due (months) Discounted at 0.5% per Period 12 3 143 144 1.000 1.995 2.985 102.497 102.987 Prepare all entries Larkspur should make in its accounting records during April 2020 relating to this lease. Remember, April 30, 2020, is the end of Larkspur's fiscal accounting period, and it will be preparing financial statements on that date. Do not prepare closing entries. (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 O for the amounts. Round answers to O decimal places, e.g. 125. Record journal entries in the order presented in the problem.) ite Account Titles and Explanation 320 320 (To record the lease.) 2020 (To record lease payment.) 2020 (To record interest.) (To record amortization.) Debit Credit
Larkspur Inc. was incorporated in 2019 to operate as a financial service firm, with an accounting fiscal year ending April 30. Larkspur's primary product is a sophisticated online investment management system; its customers pay a fixed fee plus a usage charge for using the system. Larkspur has leased a large, GenX computer system from the manufacturer. The lease calls for a monthly rental of $24,500 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 14 years. All rentals are payable on the first day of the month beginning with April 1, 2020, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the GenX system. This lease is to be accounted for as a finance lease by Larkspur, and the asset will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Larkspur 6% per year (0.5% per month). Following is a schedule of the present value of an annuity due for selected periods discounted at 0.5% per period when payments are made at the beginning of each period. Periods Present Value of an Annuity Due (months) Discounted at 0.5% per Period 12 3 143 144 1.000 1.995 2.985 102.497 102.987 Prepare all entries Larkspur should make in its accounting records during April 2020 relating to this lease. Remember, April 30, 2020, is the end of Larkspur's fiscal accounting period, and it will be preparing financial statements on that date. Do not prepare closing entries. (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 O for the amounts. Round answers to O decimal places, e.g. 125. Record journal entries in the order presented in the problem.) ite Account Titles and Explanation 320 320 (To record the lease.) 2020 (To record lease payment.) 2020 (To record interest.) (To record amortization.) Debit Credit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Larkspur Inc. was incorporated in 2019 to operate as a financial service firm, with an accounting fiscal year ending April 30.
Larkspur's primary product is a sophisticated online investment management system; its customers pay a fixed fee plus a usage
charge for using the system.
Larkspur has leased a large, GenX computer system from the manufacturer. The lease calls for a monthly rental of $24,500 for the
144 months (12 years) of the lease term. The estimated useful life of the computer is 14 years.
All rentals are payable on the first day of the month beginning with April 1, 2020, the date the computer was installed and the lease
agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on
the GenX system.
This lease is to be accounted for as a finance lease by Larkspur, and the asset will be amortized by the straight-line method.
Borrowed funds for this type of transaction would cost Larkspur 6% per year (0.5% per month). Following is a schedule of the
present value of an annuity due for selected periods discounted at 0.5% per period when payments are made at the beginning of
each period.
Periods Present Value of an Annuity Due
(months)
Discounted at 0.5% per Period
12
3
143
144
1.000
1.995
2.985
102.497
102.987
Prepare all entries Larkspur should make in its accounting records during April 2020 relating to this lease. Remember, April 30,
2020, is the end of Larkspur's fiscal accounting period, and it will be preparing financial statements on that date. Do not prepare
closing entries. (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 O for the amounts. Round answers to O decimal places, e.g. 125. Record journal entries in the
order presented in the problem.)
ite
Account Titles and Explanation
320
320
(To record the lease.)
2020
(To record lease payment.)
2020
(To record interest.)
(To record amortization.)
Debit
Credit
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