Marigold Corporation leased equipment to Splish Brothers, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,691 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $7,800, a book value of $5,800, and Marigold expects a residual value of $5,300 at the end of the lease term. Marigold set the lease payments with the intent of earning a 8% return, though Splish Brothers is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
Marigold Corporation leased equipment to Splish Brothers, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,691 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $7,800, a book value of $5,800, and Marigold expects a residual value of $5,300 at the end of the lease term. Marigold set the lease payments with the intent of earning a 8% return, though Splish Brothers is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Marigold Corporation leased equipment to Splish Brothers, Inc. on January 1, 2020. The lease agreement called for annual rental
payments of $1,691 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value
of $7,800, a book value of $5,800, and Marigold expects a residual value of $5,300 at the end of the lease term. Marigold set the lease
payments with the intent of earning a 8% return, though Splish Brothers is unaware of the rate implicit in the lease and has an
incremental borrowing rate of 10%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the
lease term, and the asset is not of a specialized nature.
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(For calculation purposes, use 5 decimal places as displayed in the factor table provided)
Transcribed Image Text:Prepare the entries for Marigold for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent
manually. Round answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Account Titles and Explanation
Date
(To record the recognition of the revenue)
(To record depreciation expense on the leased
Debit
Credit
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