On Jan 1, 2022, Baton Corporation signed a five-year non-cancelable lease for equipment from Bram. The terms of the lease called for Baton to make annual payments of $50,000 each Jan 1, beginning with Jan 1, 2022 for five years with the equipment going back to the lessor at the end of this period.
On Jan 1, 2022, Baton Corporation signed a five-year non-cancelable lease for equipment from Bram. The terms of the lease called for Baton to make annual payments of $50,000 each Jan 1, beginning with Jan 1, 2022 for five years with the equipment going back to the lessor at the end of this period.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On Jan 1, 2022, Baton Corporation signed a five-year non-cancelable lease for equipment from Bram.
The terms of the lease called for Baton to make annual payments of $50,000 each Jan 1, beginning with Jan 1, 2022 for five years with the equipment going back to the lessor at the end of this period.
The equipment has an estimated useful life of 5 years and no salvage value.
Baton accordingly accounts for this lease transaction as a finance lease.
The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%.
Bram manufactured the equipment for $155,000. For Bram, it is a sales type lease.
- Prepare a lease amortization table for the life of the lease.
- Record Baton’s (Lessee)
journal entries for 1/1/22, 12/31/22, 1/1/23, 12/31/23. - Record Bram’s (Lessor) journal entries for 1/1/22, 12/31/22, 1/1/23, 12/31/23.
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Step 1: Define 'Lease':
VIEWStep 2: (1) Prepare a lease amortization table for the life of the lease:
VIEWStep 3: (2) Record Baton’s (Lessee) journal entries for 1/1/22, 12/31/22, 1/1/23, 12/31/23:
VIEWStep 4: (3) Record Bram’s (Lessor) journal entries for 1/1/22, 12/31/22, 1/1/23, 12/31/23:
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