On January 1, Year One, BrightCo leases equipment for 6 years, although the equipment has a useful life of 8 years. The lease transfers ownership to the lessee at the end of the lease term. Payments are $12,000 per year, made at the beginning of each year. The present value of these payments, based on the lessee's borrowing rate of 9%, is $60,000. What amount of depreciation expense should the lessee recognize for Year One?

On January 1, Year One, BrightCo leases equipment for 6 years, although the equipment has a useful life of 8 years. The lease transfers ownership to the lessee at the end of the lease term. Payments are $12,000 per year, made at the beginning of each year. The present value of these payments, based on the lessee's borrowing rate of 9%, is $60,000. What amount of depreciation expense should the lessee recognize for Year One?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
LION Tech leases equipment on January 1, Year One, for 8 years, while the equipment has a total useful life of 8 years. Ownership of the equipment will transfer to the lessee at the end of the lease term. Lease payments are $12,000 per year, with the first payment made immediately. The present value of these payments at the lessee's incremental borrowing rate of 8 percent is $65,000. What amount of depreciation expense should LION Tech recognize for Year One? a. $0 b. $8,125 c. $10,833 d. $12,000
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Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following. ● Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. ● Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. ● Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. ● Shamrock paid legal fees of $3,000 in executing the lease. Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock. (Credit account titles are automatically indented when the amount is…
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