On January 1, 2024, a company signed a 6-year non-cancelable lease for a printing press. • The fair value and the present value of the minimum lease payments are both $500,000. • The lease requires annual payments of $108,582 at the beginning of each year, starting January 1, 2024. • The lessor’s implicit rate is 12% and the lessee knows this. Please round all your answers to the nearest dollar. Lessee: Financing Lease 1. Prepare the two journal entries that would be required on 1/1/24 by the lessee. 2. Prepare the two journal entries that would be required on 12/31/24 by the lessee. 3. When the lessee prepares its 12/31/24 balance sheet, how much of the lease payable would be considered current and how much would be noncurrent? 4. Prepare the journal entry that the lessee would prepare on 1/1/25 for the second cash payment. Lessor: Sales-Type (Financing) Lease Assume that the lessor’s amortization schedule happens to match the lessee’s (this won’t always be the case). Given that information, what journal entries would the lessor record on: 5. 1/1/24, on the inception of the lease. The asset’s cost to the lessor was 450,000. There should be 2 entries for the inception (not the entry for receiving the first payment). 6. 1/1/24, on receiving the first payment. 7. 12/31/24:

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, 2024, a company signed a 6-year non-cancelable lease for a printing press. • The fair value and the present value of the minimum lease payments are both $500,000. • The lease requires annual payments of $108,582 at the beginning of each year, starting January 1, 2024. • The lessor’s implicit rate is 12% and the lessee knows this. Please round all your answers to the nearest dollar. Lessee: Financing Lease 1. Prepare the two journal entries that would be required on 1/1/24 by the lessee. 2. Prepare the two journal entries that would be required on 12/31/24 by the lessee. 3. When the lessee prepares its 12/31/24 balance sheet, how much of the lease payable would be considered current and how much would be noncurrent? 4. Prepare the journal entry that the lessee would prepare on 1/1/25 for the second cash payment. Lessor: Sales-Type (Financing) Lease Assume that the lessor’s amortization schedule happens to match the lessee’s (this won’t always be the case). Given that information, what journal entries would the lessor record on: 5. 1/1/24, on the inception of the lease. The asset’s cost to the lessor was 450,000. There should be 2 entries for the inception (not the entry for receiving the first payment). 6. 1/1/24, on receiving the first payment. 7. 12/31/24:

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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