On January 2, 2021, Cullumber Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $172000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $174500 residual value of the asset at the end of the lease term. The expected value of the residual value is $62500. Brick’s incremental borrowing rate is 9%, however it knows that Cullumber’s implicit interest rate is 7%. What journal entry would Brick Co. make at January 2, 2021 to record the lease?

On January 2, 2021, Cullumber Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $172000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $174500 residual value of the asset at the end of the lease term. The expected value of the residual value is $62500. Brick’s incremental borrowing rate is 9%, however it knows that Cullumber’s implicit interest rate is 7%. What journal entry would Brick Co. make at January 2, 2021 to record the lease?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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