On January 1, 2017, Sarasota Corp. signs a 5-year noncancelable lease agreement to lease a backhoe from Scherzer Equipment, Inc. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $3,610 beginning on January 1, 2017. 2. The fair value of the backhoe on January 1, 2017, is $12,100. 3. The backhoe has an estimated economic life of 6 years, with an unguaranteed residual value of $1,420. Sarasota depreciates similar equipment on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the backhoe reverts to the lessor. 5. Sarasota’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Sarasota. 6. The yearly rental payment includes $490 of executory costs related to insurance on the back hoe. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. Sarasota’s corporate year-end is December 31. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title To record the lease enter a debit amount enter a credit amount enter an account title To record the lease enter a debit amount enter a credit amount (To record the lease) enter an account title To record rental payment enter a debit amount enter a credit amount enter an account title To record rental payment enter a debit amount enter a credit amount enter an account title To record rental payment enter a debit amount enter a credit amount (To record rental payment) choose a transaction date enter an account title To record amortization enter a debit amount enter a credit amount enter an account title To record amortization enter a debit amount enter a credit amount (To record amortization) enter an account title To record interest enter a debit amount enter a credit amount enter an account title To record interest enter a debit amount enter a credit amount (To record interest) Jan. 1, 2018 enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount choose a transaction date enter an account title To record amortization enter a debit amount enter a credit amount enter an account title To record amortization enter a debit amount enter a credit amount (To record amortization) enter an account title To record interest enter a debit amount enter a credit amount enter an account title To record interest enter a debit amount enter a credit amount (To record interest)

On January 1, 2017, Sarasota Corp. signs a 5-year noncancelable lease agreement to lease a backhoe from Scherzer Equipment, Inc. The following information pertains to this lease agreement. 1. The agreement requires equal rental payments of $3,610 beginning on January 1, 2017. 2. The fair value of the backhoe on January 1, 2017, is $12,100. 3. The backhoe has an estimated economic life of 6 years, with an unguaranteed residual value of $1,420. Sarasota depreciates similar equipment on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the backhoe reverts to the lessor. 5. Sarasota’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Sarasota. 6. The yearly rental payment includes $490 of executory costs related to insurance on the back hoe. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. Sarasota’s corporate year-end is December 31. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title To record the lease enter a debit amount enter a credit amount enter an account title To record the lease enter a debit amount enter a credit amount (To record the lease) enter an account title To record rental payment enter a debit amount enter a credit amount enter an account title To record rental payment enter a debit amount enter a credit amount enter an account title To record rental payment enter a debit amount enter a credit amount (To record rental payment) choose a transaction date enter an account title To record amortization enter a debit amount enter a credit amount enter an account title To record amortization enter a debit amount enter a credit amount (To record amortization) enter an account title To record interest enter a debit amount enter a credit amount enter an account title To record interest enter a debit amount enter a credit amount (To record interest) Jan. 1, 2018 enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount choose a transaction date enter an account title To record amortization enter a debit amount enter a credit amount enter an account title To record amortization enter a debit amount enter a credit amount (To record amortization) enter an account title To record interest enter a debit amount enter a credit amount enter an account title To record interest enter a debit amount enter a credit amount (To record interest)

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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34.

On January 1, 2017, Sarasota Corp. signs a 5-year noncancelable lease agreement to lease a backhoe from Scherzer Equipment, Inc. The following information pertains to this lease agreement.

1.		The agreement requires equal rental payments of $3,610 beginning on January 1, 2017.
2.		The fair value of the backhoe on January 1, 2017, is $12,100.
3.		The backhoe has an estimated economic life of 6 years, with an unguaranteed residual value of $1,420. Sarasota depreciates similar equipment on the straight-line method.
4.		The lease is nonrenewable. At the termination of the lease, the backhoe reverts to the lessor.
5.		Sarasota’s incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Sarasota.
6.		The yearly rental payment includes $490 of executory costs related to insurance on the back hoe.

Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. Sarasota’s corporate year-end is December 31. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
choose a transaction date	enter an account title To record the lease	enter a debit amount	enter a credit amount
	enter an account title To record the lease	enter a debit amount	enter a credit amount
	(To record the lease)
	enter an account title To record rental payment	enter a debit amount	enter a credit amount
	enter an account title To record rental payment	enter a debit amount	enter a credit amount
	enter an account title To record rental payment	enter a debit amount	enter a credit amount
	(To record rental payment)
choose a transaction date	enter an account title To record amortization	enter a debit amount	enter a credit amount
	enter an account title To record amortization	enter a debit amount	enter a credit amount
	(To record amortization)
	enter an account title To record interest	enter a debit amount	enter a credit amount
	enter an account title To record interest	enter a debit amount	enter a credit amount
	(To record interest)
Jan. 1, 2018	enter an account title for the journal entry on January 1 2018	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on January 1 2018	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on January 1 2018	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on January 1 2018	enter a debit amount	enter a credit amount
choose a transaction date	enter an account title To record amortization	enter a debit amount	enter a credit amount
	enter an account title To record amortization	enter a debit amount	enter a credit amount
	(To record amortization)
	enter an account title To record interest	enter a debit amount	enter a credit amount
	enter an account title To record interest	enter a debit amount	enter a credit amount
	(To record interest)

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