LeBron James (LBJ) Corporation agrees on January 1, 2025, to lease equipment from Pharoah, Inc. for 3 years. The lease calls for annual lease payments of $21,000 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, 2025 (commencement of the operating lease), and on December 31, 2025. Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate is 8%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Click here to view factor tables. Account Titles and Explanation Right-of-Use Asset Lease Liability To record lease liability) Lease Liability Cash To record lease payment) Lease Expense Lease Liability Right-of-Use Asset Debit 21000 21000 Credit 21000
LeBron James (LBJ) Corporation agrees on January 1, 2025, to lease equipment from Pharoah, Inc. for 3 years. The lease calls for annual lease payments of $21,000 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, 2025 (commencement of the operating lease), and on December 31, 2025. Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate is 8%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Click here to view factor tables. Account Titles and Explanation Right-of-Use Asset Lease Liability To record lease liability) Lease Liability Cash To record lease payment) Lease Expense Lease Liability Right-of-Use Asset Debit 21000 21000 Credit 21000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:LeBron James (LBJ) Corporation agrees on January 1, 2025, to lease equipment from Pharoah, Inc. for 3 years. The
lease calls for annual lease payments of $21,000 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, 2025 (commencement of the operating lease), and on December 31, 2025.
Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate is 8%. (Credit account
titles are automatically indented when the amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries
before credit entries. For calculation purposes, use 5 decimal places as displayed in the factor table
provided and round final answers to O decimal places, e.g. 5,275. Record journal entries in the order
presented in the problem.)
Click here to view factor tables.
Account Titles and Explanation
Right-of-Use Asset
Lease Liability
To record lease liability)
Lease Liability
Cash
To record lease payment)
Lease Expense
Lease Liability
Right-of-Use Asset
Debit
21000
21000
Credit
21000
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