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On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $974,790. Worcester's borrowing rate for similar transactions is 11%. The lease agreement specified four annual payments of $214,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 11% is $736,955. On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 10%. 1. Prepare the appropriate entries for Worcester Construction on January 1, 2023, to adjust its lease liability for the lease modification.

On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $974,790. Worcester's borrowing rate for similar transactions is 11%. The lease agreement specified four annual payments of $214,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 11% is $736,955. On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 10%. 1. Prepare the appropriate entries for Worcester Construction on January 1, 2023, to adjust its lease liability for the lease modification.

FINANCIAL ACCOUNTING
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, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $974,790. Worcester's borrowing rate for similar transactions is 11%. The lease agreement specified four annual payments of $214,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 11% is $736,955. On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 10%. 1. Prepare the appropriate entries for Worcester Construction on January 1, 2023, to adjust its lease liability for the lease modification. 2. Prepare all appropriate entries for Newton LeaseCorp on January 1, 2023, to record the lease modification. 3. Prepare all appropriate entries for Worcester Construction on December 31, 2023, related to the lease. 4. Prepare all appropriate entries for Newton LeaseCorp on December 31, 2023, related to the lease.
Transcribed Image Text:On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $974,790. Worcester's borrowing rate for similar transactions is 11%. The lease agreement specified four annual payments of $214,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 11% is $736,955. On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 10%. 1. Prepare the appropriate entries for Worcester Construction on January 1, 2023, to adjust its lease liability for the lease modification. 2. Prepare all appropriate entries for Newton LeaseCorp on January 1, 2023, to record the lease modification. 3. Prepare all appropriate entries for Worcester Construction on December 31, 2023, related to the lease. 4. Prepare all appropriate entries for Newton LeaseCorp on December 31, 2023, related to the lease.
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