non-cancelable lease
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
2.
Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 20X1 under the following terms:
- Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.
- The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
- The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
- The tractor has a six-year economic life.
- Morey has an excellent credit rating.
- 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?
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