LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Cullumber, Inc. for 3 years. The lease calls for annual lease payments of $18,000 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 6%. (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 (To record lease liability) (To record lease payment)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Cullumber, Inc. for 3 years. The lease calls for annual lease payments of $18,000 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 6%. (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


	(To record lease liability)


	(To record lease payment)

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Lease is an agreement or arrangement between two parties, in which one party provides its asset for use to another party. Party having the asset is known as Lessor and party using the asset is known as Lessee.

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