Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Bonita 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 $75,000. 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 $23,522.48 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. 6. Bonita uses the straight-line depreciation method for all equipment. Click here to view factor tables. 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 1/1/20 LEASE EQUIPMENT, EQUIPMENT, AND LEASE EXPENSE (WRONG) 67260.42 LEASE LIABILITY (CORRECT) 67260.42 (To record the lease) 1/1//20 LEASE LAIBILITY (CORRECT) 23522.48 CASH (CORRECT) 23522.48 (To record lease liability) 12/31/20 DEBIT: LEASE EXPENSE (CORRECT) ? CREDIT: LEASE LIABILITY (CORRECT) ? CREDIT: CASH AND INTEREST EXPENSE (WRONG) ?

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Bonita 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 $75,000. 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 $23,522.48 to the lessor, beginning on January 1, 2020. 5. The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. 6. Bonita uses the straight-line depreciation method for all equipment. Click here to view factor tables. 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 1/1/20 LEASE EQUIPMENT, EQUIPMENT, AND LEASE EXPENSE (WRONG) 67260.42 LEASE LIABILITY (CORRECT) 67260.42 (To record the lease) 1/1//20 LEASE LAIBILITY (CORRECT) 23522.48 CASH (CORRECT) 23522.48 (To record lease liability) 12/31/20 DEBIT: LEASE EXPENSE (CORRECT) ? CREDIT: LEASE LIABILITY (CORRECT) ? CREDIT: CASH AND INTEREST EXPENSE (WRONG) ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Bonita 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 $75,000.
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 $23,522.48 to the lessor, beginning on January 1, 2020.
5.		The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee.
6.		Bonita uses the straight-line depreciation method for all equipment.

Click here to view factor tables.

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
1/1/20	LEASE EQUIPMENT, EQUIPMENT, AND LEASE EXPENSE (WRONG)	67260.42
	LEASE LIABILITY (CORRECT)		67260.42
	(To record the lease)
1/1//20	LEASE LAIBILITY (CORRECT)	23522.48
	CASH (CORRECT)		23522.48
	(To record lease liability)
12/31/20	DEBIT: LEASE EXPENSE (CORRECT)	?
	CREDIT: LEASE LIABILITY (CORRECT)		?
	CREDIT: CASH AND INTEREST EXPENSE (WRONG)		?

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