**Lease Agreement Overview**- **Date of Lease Commencement:** January 1, 2020- **Lessor:** Firm ABC- **Lessee:** Firm XYZ**Lease Details:**1. **Lease Term:** 3 years2. **Building Cost and Value:** - Cost at commencement: $60,000 - Depreciation: Straight-line basis - Estimated economic life: 5 years - Salvage value at lease end: $12,000 - Residual value after 5 years: $03. **Lease Renewal:** No options; reverts to Firm ABC4. **Implicit Interest Rate:** 6% (Firm ABC)5. **Calendar Year Basis:** Applied to both lessor and lessee**Required Journal Entries:**(a) **For Firm XYZ (Lessee):** Prepare journal entries for: - **Dates:** 1/1/2020, 1/1/2021, 1/1/2022 - Include: - Lease Payment - Interest - Reduction of Lease Liability - Lease Liability(b) **For Firm ABC (Lessor):** Prepare journal entries for the year 2020.

On January 1, 2020, Firm ABC (lessor) leased a building to Firm XYZ (lessee). The relevant information related to the lease is as follows. 1) The lease arrangement is for 3 years. 2) T The building's cost and fair value at commencement of the lease is $60,000. The building is depreciated on a straight-line basis. Its estimated economic life is 5 years with salvage value of $12,000 at the end of the lease. The residual value after 5 years is assumed to be zero. 3) The lease contains o renewal options. The building reverts to Firm ABC at the termination of the lease. 4) The implicit rate of Firm ABC (the lessor) is 6% and is known by Firm XYZ. 5) Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Firm XYZ should make in 2020 Dates 1/1/2020, 1/1/2020, 1/1/2021, 1/1/2022 Please include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability (b) Prepare the journal entries that Firm ABC should make in 2020

On January 1, 2020, Firm ABC (lessor) leased a building to Firm XYZ (lessee). The relevant information related to the lease is as follows. 1) The lease arrangement is for 3 years. 2) T The building's cost and fair value at commencement of the lease is $60,000. The building is depreciated on a straight-line basis. Its estimated economic life is 5 years with salvage value of $12,000 at the end of the lease. The residual value after 5 years is assumed to be zero. 3) The lease contains o renewal options. The building reverts to Firm ABC at the termination of the lease. 4) The implicit rate of Firm ABC (the lessor) is 6% and is known by Firm XYZ. 5) Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Firm XYZ should make in 2020 Dates 1/1/2020, 1/1/2020, 1/1/2021, 1/1/2022 Please include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability (b) Prepare the journal entries that Firm ABC should make in 2020

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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