LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Oriole, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare LBJ’s journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is unknown, and LBJ’s incremental borrowing rate is 7%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Oriole, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare LBJ’s journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is unknown, and LBJ’s incremental borrowing rate is 7%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Oriole, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment.
Prepare LBJ’s
Transcribed Image Text:LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Oriole, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does
not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less
than 90% of the fair value of the equipment.
Prepare LBJ's journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate
is 7%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table
provided and round final answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Click here to view factor tables.
Date
Account Titles and Explanation
Debit
Credit
[1/1/20
Right-of-Use Asset
44,928
Lease Liability
44,928
(To record lease liability)
시
T1/1/20
Lease Liability
16,000
Cash
16,000
(To record lease payment)
|12/31/20 v
Lease Expense
16,000
Right-of-Use Asset
28,928
Lease Liability
(12,928)
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