Larkspur Leasing Company agrees to lease equipment to Cullumber Corporation on January 1, 2025. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $523,000, and the fair value of the asset on January 1, 2025, is $758,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Cullumber estimates that the expected residual value at the end of the lease term will be $60,000. Cullumber amortizes all of its leased equipment on a straight - line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. 5. The collectibility of the lease payments is probable. 6. Larkspur desires a 10% rate of r 1) Prepare the journal entries Larkspur would make in 2025 and 2026 related to the lease arrangement. 2)Prepare the journal entries Cullumber would make in 2025 and 2026 related to the lease arrangement. 3) Suppose Larkspur expects the residual value at the end of the lease term to be $40,000 but still guarantees a residual of $50,000. 4) Compute the value of the lease liability at lease commencement.
Larkspur Leasing Company agrees to lease equipment to Cullumber Corporation on January 1, 2025. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $523,000, and the fair value of the asset on January 1, 2025, is $758,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Cullumber estimates that the expected residual value at the end of the lease term will be $60,000. Cullumber amortizes all of its leased equipment on a straight - line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. 5. The collectibility of the lease payments is probable. 6. Larkspur desires a 10% rate of r 1) Prepare the journal entries Larkspur would make in 2025 and 2026 related to the lease arrangement. 2)Prepare the journal entries Cullumber would make in 2025 and 2026 related to the lease arrangement. 3) Suppose Larkspur expects the residual value at the end of the lease term to be $40,000 but still guarantees a residual of $50,000. 4) Compute the value of the lease liability at lease commencement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Larkspur Leasing Company agrees to lease equipment to Cullumber Corporation on January 1, 2025. The following
information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the
machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $523,000, and the fair value of the
asset on January 1, 2025, is $758, 000. 3. At the end of the lease term, the asset reverts to the lessor and has a
guaranteed residual value of $60,000. Cullumber estimates that the expected residual value at the end of the lease term
will be $60,000. Cullumber amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement
requires equal annual rental payments, beginning on January 1, 2025. 5. The collectibility of the lease payments is
probable. 6. Larkspur desires a 10% rate of r 1) Prepare the journal entries Larkspur would make in 2025 and 2026
related to the lease arrangement. 2) Prepare the journal entries Cullumber would make in 2025 and 2026 related to the
lease arrangement. 3) Suppose Larkspur expects the residual value at the end of the lease term to be $40,000 but still
guarantees a residual of $50,000. 4) Compute the value of the lease liability at lease commencement.
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