Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Nash Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $74,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $22,886.45 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee. 6. Nash uses the straight-line depreciation method for all equipment. Click here to view factor tables. https://education.wiley.com/wpng/api/v1/content/resource/8e661f8d-53ec-410b-b565-ac7e29fc0290 Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31.
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Nash Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $74,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $22,886.45 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee. 6. Nash uses the straight-line depreciation method for all equipment. Click here to view factor tables. https://education.wiley.com/wpng/api/v1/content/resource/8e661f8d-53ec-410b-b565-ac7e29fc0290 Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Nash Company. The following information relates to this agreement.
| 1. | The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
| 2. | The fair value of the asset at January 1, 2020, is $74,000. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. | |
| 4. | The agreement requires equal annual rental payments of $22,886.45 to the lessor, beginning on January 1, 2020. | |
| 5. | The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee. | |
| 6. | Nash uses the |
Click here to view factor tables. https://education.wiley.com/wpng/api/v1/content/resource/8e661f8d-53ec-410b-b565-ac7e29fc0290
Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 2 decimal places, e.g. 5,265.25. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)
|
Date
|
Account Titles and Explanation
|
Debit
|
Credit
|
|---|---|---|---|
|
|
|
|
enter an account title To record the lease on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|---|---|---|---|
|
|
enter an account title To record the lease on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|
|
(To record the lease)
|
||
|
|
|
|
enter an account title To record lease liability on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|---|---|---|---|
|
|
enter an account title To record lease liability on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|
|
(To record lease liability)
|
||
|
|
|
|
enter an account title for the
|
enter a debit amount
|
enter a credit amount
|
|---|---|---|---|
|
|
enter an account title for the journal entry on December 31 2020
|
enter a debit amount
|
enter a credit amount
|
|
|
enter an account title for the journal entry on December 31 2020
|
enter a debit amount
|
enter a credit amount
|
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