non-cancelable lease

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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2.

Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms:

 

  1. Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.
  2. The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
  3. The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
  4. The tractor has a six-year economic life.
  5. Morey has an excellent credit rating.
  6. Equity offers no warranty on the tractor other than the manufacturer’s two-year warranty that is handled directly with the manufacturer.

 

Which of the following entries will Morey prepare to record the lease of the tractor on January 1, 20X1?

 

Multiple Choice
  •  
    DR Rent expense 26,379.74 CR Cash 26,379.74
  •  
    DR Right-of-use asset 102,607.95 CR Finance lease liability 102,607.95
  •  
    DR Right-of-use asset 131,898.70 CR Cash 26,379.74 CR Finance lease liability 105,518.96
  •  
    DR Right-of-use asset 131,898.70 CR Cash 131,898.70
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