On January 1, Year 1, Robin Corp. signs a contract to lease non-specialized manufacturing equipment from Owl, Inc. Robin agrees to make lease payments of $36,000 per year. Additional information pertaining to the lease is as follows: 1. The term of the noncancelable lease is four years. Payments are due every December 31, beginning December 31, Year 1. Owl expects to collect all lease payments. 2. The fair value of the manufacturing equipment on January 1, Year 1, is $150,000. The equipment has an economic life of seven years. 3. The equipment has an estimated residual value of $15,000 at the end of the lease term. This amount is not guaranteed by Robin. 4. Both Robin and Owl depreciate similar assets using the straight-line method. 5. Robin's incremental borrowing rate is 8% per year; Owl's implicit interest rate is 6% and is known by Robin. 6. Robin pays $1,100 per year for maintenance of the equipment directly to an applicable third party. 7. Assume that this is an operating lease and prepare journal entries for Owl (the lessor) for the entire lease. Round your answers to the nearest cent and use the rounded answer for the subsequent calculations. Year 1 Jan. 1 150,000 150,000 Right-of-Use Asset Lease Liability Dec. 31 Lease Liability 141,000 Cash 141,000 Dec. 31 Interest Revenue 846 Lease Liability 132,540 Year 2 Dec. 31 Dec. 31
On January 1, Year 1, Robin Corp. signs a contract to lease non-specialized manufacturing equipment from Owl, Inc. Robin agrees to make lease payments of $36,000 per year. Additional information pertaining to the lease is as follows: 1. The term of the noncancelable lease is four years. Payments are due every December 31, beginning December 31, Year 1. Owl expects to collect all lease payments. 2. The fair value of the manufacturing equipment on January 1, Year 1, is $150,000. The equipment has an economic life of seven years. 3. The equipment has an estimated residual value of $15,000 at the end of the lease term. This amount is not guaranteed by Robin. 4. Both Robin and Owl depreciate similar assets using the straight-line method. 5. Robin's incremental borrowing rate is 8% per year; Owl's implicit interest rate is 6% and is known by Robin. 6. Robin pays $1,100 per year for maintenance of the equipment directly to an applicable third party. 7. Assume that this is an operating lease and prepare journal entries for Owl (the lessor) for the entire lease. Round your answers to the nearest cent and use the rounded answer for the subsequent calculations. Year 1 Jan. 1 150,000 150,000 Right-of-Use Asset Lease Liability Dec. 31 Lease Liability 141,000 Cash 141,000 Dec. 31 Interest Revenue 846 Lease Liability 132,540 Year 2 Dec. 31 Dec. 31
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:On January 1, Year 1, Robin Corp. signs a contract to lease non-specialized manufacturing equipment from Owl, Inc. Robin agrees to make lease payments of $36,000 per year.
Additional information pertaining to the lease is as follows:
1. The term of the noncancelable lease is four years. Payments are due every December 31, beginning December 31, Year 1. Owl expects to collect all lease payments.
2. The fair value of the manufacturing equipment on January 1, Year 1, is $150,000. The equipment has an economic life of seven years.
3. The equipment has an estimated residual value of $15,000 at the end of the lease term. This amount is not guaranteed by Robin.
4. Both Robin and Owl depreciate similar assets using the straight-line method.
5. Robin's incremental borrowing rate is 8% per year; Owl's implicit interest rate is 6% and is known by Robin.
6. Robin pays $1,100 per year for maintenance of the equipment directly to an applicable third party.
7. Assume that this is an operating lease and prepare journal entries for Owl (the lessor) for the entire lease.
Round your answers to the nearest cent and use the rounded answer for the subsequent calculations.
Year 1
Jan. 1
150,000
150,000
Right-of-Use Asset
Lease Liability
Dec. 31 Lease Liability
141,000
Cash
141,000
Dec. 31 Interest Revenue
846
Lease Liability
132,540
Year 2
Dec. 31
Dec. 31
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education