On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions:•The lease is noncancelable and has a term of 8 years.•The annual rentals are $31,000, payable at the beginning of each year.•The interest rate implicit in the lease is 12%.•Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026.•The cost of the equipment to the lessor is $162,500, and the fair value is approximately $172,500.•Ballieu incurs no material initial direct costs.•It is probable that Ballieu will collect the lease payments.•Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $31,000 discounted at 12% is $172,476.47 (the $1 purchase option is ignored as immaterial).Required: 1.Prepare all the journal entries for Ballieu for the years 2019 and 2020.

SOLUTION- MEANING OF LEASE = It is a Contractual Arrangement Calling for the Lessee(User) to pay the…

Answered: On January 1, 2019, Ballieu Company…

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 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions:

•	The lease is noncancelable and has a term of 8 years.
•	The annual rentals are $31,000, payable at the beginning of each year.
•	The interest rate implicit in the lease is 12%.
•	Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026.
•	The cost of the equipment to the lessor is $162,500, and the fair value is approximately $172,500.
•	Ballieu incurs no material initial direct costs.
•	It is probable that Ballieu will collect the lease payments.
•	Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.

Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $31,000 discounted at 12% is $172,476.47 (the $1 purchase option is ignored as immaterial).

Required:


1.	Prepare all the journal entries for Ballieu for the years 2019 and 2020.

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