On January 1, 2021, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires a lease payments equal to 3% of Taco King's sales revenue, with a quarterly sales minimum of $520,000. Payments each quarter are based on previous quarter sales. During the previous 5-year period, Taco King has generated qu $710,000. Fogelman's interest rate, known by Taco King, was 4%. ( EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD O (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries for Taco King at the beginning of the lease at January 1, 2021 $730.000 Amortization is recc

On January 1, 2021, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires a lease payments equal to 3% of Taco King's sales revenue, with a quarterly sales minimum of $520,000. Payments each quarter are based on previous quarter sales. During the previous 5-year period, Taco King has generated qu $710,000. Fogelman's interest rate, known by Taco King, was 4%. ( EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD O (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries for Taco King at the beginning of the lease at January 1, 2021 $730.000 Amortization is recc

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, 2021, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. Rick's had no significant economic incentive as of the beginning of the lease to exercise the 3-year extension option. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Assume that at the beginning of the third year, January 1, 2023, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." The relevant interest rate at that time was 6%. (FV of $1, PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry, if any, at the beginning of the third year for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, at the…
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