Homework Help is Here – Start Your Trial Now!
Business
Accounting
On January 1 of Year 1, lessor Marcy and lessee Lenox contract for the lease of a machine for five payments of $3,500 each. The $3,500 payments are to be paid at the end of each year beginning on December 31 of Year 1. They also agree that at the time of the fifth payment, for an added $3,000 purchase option payment, Lenox can buy the property. Lenox reasonably expects to exercise the purchase option as the amount is well under the expected fair value at that time. Lenox's incremental borrowing rate is 6% per year and Lenox is unaware of the implicit rate of the lease. The economic life of the asset is six years. Required

On January 1 of Year 1, lessor Marcy and lessee Lenox contract for the lease of a machine for five payments of $3,500 each. The $3,500 payments are to be paid at the end of each year beginning on December 31 of Year 1. They also agree that at the time of the fifth payment, for an added $3,000 purchase option payment, Lenox can buy the property. Lenox reasonably expects to exercise the purchase option as the amount is well under the expected fair value at that time. Lenox's incremental borrowing rate is 6% per year and Lenox is unaware of the implicit rate of the lease. The economic life of the asset is six years. Required

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
Please Complete all requirement and Do not give solution in image format
Reporting Finance Lease, Purchase Option-Lessee On January 1 of Year 1, lessor Marcy and lessee Lenox contract for the lease of a machine for five payments of $3,500 each. The $3,500 payments are to be paid at the end of each year beginning on December 31 of Year 1. They also agree that at the time of the fifth payment, for an added $3,000 purchase option payment, Lenox can buy the property. Lenox reasonably expects to exercise the purchase option as the amount is well under the expected fair value at that time. Lenox's incremental borrowing rate is 6% per year and Lenox is unaware of the implicit rate of the lease. The economic life of the asset is six years. Required a. How would Lenox classify the lease? b. Compute the value of the lease liability on January 1 of Year 1. Note: Round your answer to the nearest whole dollar. $0
Transcribed Image Text:Reporting Finance Lease, Purchase Option-Lessee On January 1 of Year 1, lessor Marcy and lessee Lenox contract for the lease of a machine for five payments of $3,500 each. The $3,500 payments are to be paid at the end of each year beginning on December 31 of Year 1. They also agree that at the time of the fifth payment, for an added $3,000 purchase option payment, Lenox can buy the property. Lenox reasonably expects to exercise the purchase option as the amount is well under the expected fair value at that time. Lenox's incremental borrowing rate is 6% per year and Lenox is unaware of the implicit rate of the lease. The economic life of the asset is six years. Required a. How would Lenox classify the lease? b. Compute the value of the lease liability on January 1 of Year 1. Note: Round your answer to the nearest whole dollar. $0
Lease Liability Schedule Journal Entries c. Prepare a schedule of the lease liability for the first two years of the lease term. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Jan. 1, Year 1 Dec. 31, Year 1 $ Dec. 31, Year 2 $ Show Transcribed Text Date Jan. 1, Year 1 Lease Payment Lease Liability Schedule Dec. 31, Year 1 Dec. 31, Year 1 Dec. 31, Year 2 Interest on Liability 0 $ 0$ Dec. 31, Year 2 Lease Liability Change 0$ 0$ d. Prepare the entries for Lenox on (1) January 1 of Year 1, (2) December 31 of Year 1, and (3) December 31 of Year 2. Note: Round your answers to the nearest whole dollar. Journal Entries Account Name AN To record lease payment To record amortization To record asset and liability related to lease To record lease payment To record amortization Lease Liability $ 0 $ 0 $ c V V V 0 0 0 V Dr. 0 0 0 0 0 0 0 0 0 0 0 0 Cr. 0 0 0 0 0 0 0 0 0 0 0 0
Transcribed Image Text:Lease Liability Schedule Journal Entries c. Prepare a schedule of the lease liability for the first two years of the lease term. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Jan. 1, Year 1 Dec. 31, Year 1 $ Dec. 31, Year 2 $ Show Transcribed Text Date Jan. 1, Year 1 Lease Payment Lease Liability Schedule Dec. 31, Year 1 Dec. 31, Year 1 Dec. 31, Year 2 Interest on Liability 0 $ 0$ Dec. 31, Year 2 Lease Liability Change 0$ 0$ d. Prepare the entries for Lenox on (1) January 1 of Year 1, (2) December 31 of Year 1, and (3) December 31 of Year 2. Note: Round your answers to the nearest whole dollar. Journal Entries Account Name AN To record lease payment To record amortization To record asset and liability related to lease To record lease payment To record amortization Lease Liability $ 0 $ 0 $ c V V V 0 0 0 V Dr. 0 0 0 0 0 0 0 0 0 0 0 0 Cr. 0 0 0 0 0 0 0 0 0 0 0 0
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS