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On January 1, Year 1, Drake Co. leased equipment from Brewer, Inc. Lease payments are $100,000, payable annually every December 31 for 20 years. Title to the equipment passes to Drake at the end of the lease term. The lease is non-cancelable. Additional Facts: The equipment has a $750,000 carrying amount on Brewer's books. Its estimated economic life was 25 years on January 1, Year 1. The rate implicit in the lease, which is known to Drake, is 10%. Drake's incremental borrowing rate is 12%. Drake normally uses the straight-line method of depreciation for equipment. The economic life of the equipment did not change as a result of the lease. 1. Record the journal entries for Drake on January 1, Year 1. 2. Record the journal entries for Drake on December 31, Year 1. 3. Record the journal entries for Drake on December 31, Year 2. 4. Record the journal entries for Brewer on January 1, Year 1. 5. Record the journal entries for Brewer on December 31, Year 1. 6. Record the journal entries for Brewer on December 31, Year 2.

On January 1, Year 1, Drake Co. leased equipment from Brewer, Inc. Lease payments are $100,000, payable annually every December 31 for 20 years. Title to the equipment passes to Drake at the end of the lease term. The lease is non-cancelable. Additional Facts: The equipment has a $750,000 carrying amount on Brewer's books. Its estimated economic life was 25 years on January 1, Year 1. The rate implicit in the lease, which is known to Drake, is 10%. Drake's incremental borrowing rate is 12%. Drake normally uses the straight-line method of depreciation for equipment. The economic life of the equipment did not change as a result of the lease. 1. Record the journal entries for Drake on January 1, Year 1. 2. Record the journal entries for Drake on December 31, Year 1. 3. Record the journal entries for Drake on December 31, Year 2. 4. Record the journal entries for Brewer on January 1, Year 1. 5. Record the journal entries for Brewer on December 31, Year 1. 6. Record the journal entries for Brewer on December 31, Year 2.

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, Year 1, Drake Co. leased equipment from Brewer, Inc. Lease payments are $100,000, payable annually every December 31 for 20 years. Title to the equipment passes to Drake at the end of the lease term. The lease is non-cancelable. Additional Facts: The equipment has a $750,000 carrying amount on Brewer's books. Its estimated economic life was 25 years on January 1, Year 1. The rate implicit in the lease, which is known to Drake, is 10%. Drake's incremental borrowing rate is 12%. Drake normally uses the straight-line method of depreciation for equipment. The economic life of the equipment did not change as a result of the lease. 1. Record the journal entries for Drake on January 1, Year 1. 2. Record the journal entries for Drake on December 31, Year 1. 3. Record the journal entries for Drake on December 31, Year 2. 4. Record the journal entries for Brewer on January 1, Year 1. 5. Record the journal entries for Brewer on December 31, Year 1. 6. Record the journal entries for Brewer on December 31, Year 2.
Transcribed Image Text:On January 1, Year 1, Drake Co. leased equipment from Brewer, Inc. Lease payments are $100,000, payable annually every December 31 for 20 years. Title to the equipment passes to Drake at the end of the lease term. The lease is non-cancelable. Additional Facts: The equipment has a $750,000 carrying amount on Brewer's books. Its estimated economic life was 25 years on January 1, Year 1. The rate implicit in the lease, which is known to Drake, is 10%. Drake's incremental borrowing rate is 12%. Drake normally uses the straight-line method of depreciation for equipment. The economic life of the equipment did not change as a result of the lease. 1. Record the journal entries for Drake on January 1, Year 1. 2. Record the journal entries for Drake on December 31, Year 1. 3. Record the journal entries for Drake on December 31, Year 2. 4. Record the journal entries for Brewer on January 1, Year 1. 5. Record the journal entries for Brewer on December 31, Year 1. 6. Record the journal entries for Brewer on December 31, Year 2.
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