Oriole Dairy leases its milking equipment from Waterway Finance Company under the following lease terms. The lease term is 10 years, noncancelable, and requires equal rental payments of $29.400 due at the beginning of each year starting January 1,2020. 1. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $222.184 and a cost of $231,000 on Waterway Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $14.100. though Oriole Dairy has guaranteed a residual value of $19.700 to Waterway Finance. 2. The lease contains no renewal options, and the equipment reverts to Waterway Finance upon termination of the lease. The equipment is not of a specialized use. 3. 4. Oriole Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Oriole Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable.
Oriole Dairy leases its milking equipment from Waterway Finance Company under the following lease terms. The lease term is 10 years, noncancelable, and requires equal rental payments of $29.400 due at the beginning of each year starting January 1,2020. 1. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $222.184 and a cost of $231,000 on Waterway Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $14.100. though Oriole Dairy has guaranteed a residual value of $19.700 to Waterway Finance. 2. The lease contains no renewal options, and the equipment reverts to Waterway Finance upon termination of the lease. The equipment is not of a specialized use. 3. 4. Oriole Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Oriole Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Prepare the journal entries for the lessee and lessor at January 1, 2020, and December 31,
lessee's and lessor's year-end). Assume no reversing entries. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry is required, select "No
Entry" for the account titles and enter 0 for the amounts. Round present value factor
calculations to 5 decimal places, e.g. 1.25125 and final answers to 0 decimal places, e.g. 5,250.)
Transcribed Image Text:Oriole Dairy leases its milking equipment from Waterway Finance Company under the following lease terms.
The lease term is 10 years, noncancelable, and requires equal rental payments of $29,400 due at the beginning of each year
starting January 1,2020.
1.
The equipment has a fair value at the commencement of the lease (January 1, 2020) of $222.184 and a cost of $231.000 on
Waterway Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $14,100,
though Oriole Dairy has guaranteed a residual value of $19.700 to Waterway Finance.
2.
The lease contains no renewal options, and the equipment reverts to Waterway Finance upon termination of the lease. The
equipment is not of a specialized use.
4.
Oriole Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%.
Oriole Dairy depreciates similar equipment that it owns on a straight-line basis.
6.
Collectibility of the payments is probable.
3.
5.
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