On January 1, 2020, Oriole Company leased equipment to Flynn Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2.000, while the expected residual value at the end of the lease is $9,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3 The fair value of the equipment on January 1, 2020, is $185.000, and its cost is $120,000. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. Oriole set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. 1. 4. 5. Both the lessor and the lessee's accounting periods end on December 31. Prepare all the necessary journal entries for Oriole for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date 1/1/20 1/1/20 12/31/20 Account Titles and Explanation (To record the lease) (To record lease payment) Debit Credit Stitch It
On January 1, 2020, Oriole Company leased equipment to Flynn Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2.000, while the expected residual value at the end of the lease is $9,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3 The fair value of the equipment on January 1, 2020, is $185.000, and its cost is $120,000. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. Oriole set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. 1. 4. 5. Both the lessor and the lessee's accounting periods end on December 31. Prepare all the necessary journal entries for Oriole for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date 1/1/20 1/1/20 12/31/20 Account Titles and Explanation (To record the lease) (To record lease payment) Debit Credit Stitch It
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2020, Oriole Company leased equipment to Flynn Corporation. The following information pertains to this lease.
The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment
for $2,000, while the expected residual value at the end of the lease is $9,000,
1.
2.
3.
4.
5.
6.
Equal rental payments are due on January 1 of each year, beginning in 2020.
The fair value of the equipment on January 1, 2020, is $185,000, and its cost is $120,000.
The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis.
Oriole set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 8%, and the implicit rate of
the lessor is unknown.
Collectibility of lease payments by the lessor is probable
Both the lessor and the lessee's accounting periods end on December 31
Prepare all the necessary journal entries for Oriole for 2020. (Credit account titles are automatically indented when the
amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the
order presented in the problem.)
Date
1/1/20
1/1/20
12/31/20
Account Titles and Explanation
(To record the lease)
(To record lease payment)
Debit
||||
Credit
Stitch It!
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