n January 2, 2021, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2021 to record the lease? PV Annuity Due PV Ordinary Annuity PV Single Sum 8%, 5 periods 4.31213 3.99271 .68508 . 10%, 5 periods 4.16986 3.79079 .62092 . a. Right-of-Use Asset 598,449 Lease Liability 598,449 b. Right-of-Use Asset 758,449 Cash 160,000 Lease Liability 598,449 c. Right-of-Use Asset 689,940 Cash 160,000 Lease Liability 529,940 d. Right-of-Use Asset 707,342 Cash 160,000 Lease Liability 547,342

n January 2, 2021, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2021 to record the lease? PV Annuity Due PV Ordinary Annuity PV Single Sum 8%, 5 periods 4.31213 3.99271 .68508 . 10%, 5 periods 4.16986 3.79079 .62092 . a. Right-of-Use Asset 598,449 Lease Liability 598,449 b. Right-of-Use Asset 758,449 Cash 160,000 Lease Liability 598,449 c. Right-of-Use Asset 689,940 Cash 160,000 Lease Liability 529,940 d. Right-of-Use Asset 707,342 Cash 160,000 Lease Liability 547,342

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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On January 2, 2021, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2021 to record the lease?

PV Annuity Due PV Ordinary Annuity PV Single Sum

8%, 5 periods 4.31213 3.99271 .68508 .

10%, 5 periods 4.16986 3.79079 .62092 .

a. Right-of-Use Asset 598,449

Lease Liability 598,449

b. Right-of-Use Asset 758,449

Cash 160,000

Lease Liability 598,449

c. Right-of-Use Asset 689,940

Cash 160,000

Lease Liability 529,940

d. Right-of-Use Asset 707,342

Cash 160,000

Lease Liability 547,342

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