Oriole Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $3,937 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $19,500, a book value to Oriole of $12,500, and a useful life of 6 years. 4. At the end of the lease term, Oriole and Walsh expect there to be an unguaranteed residual value of $3,125. 5. Oriole wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. Click here to view factor tables. (b) Using the original facts of the lease, show the journal entries to be made by both Oriole and Walsh in 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Oriole Journal Entries Date Account Titles and Explanation Debit Credit (To record the lease) (To record lease payment) Walsh’s Journal Entries Date Account Titles and Explanation Debit Credit (To record the lease) (To record lease payment) (To record interest expense) (To record amortization of the right-of-use asset)

Oriole Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is 5 years, with equal annual rental payments of $3,937 at the beginning of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $19,500, a book value to Oriole of $12,500, and a useful life of 6 years. 4. At the end of the lease term, Oriole and Walsh expect there to be an unguaranteed residual value of $3,125. 5. Oriole wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. Click here to view factor tables. (b) Using the original facts of the lease, show the journal entries to be made by both Oriole and Walsh in 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Oriole Journal Entries Date Account Titles and Explanation Debit Credit (To record the lease) (To record lease payment) Walsh’s Journal Entries Date Account Titles and Explanation Debit Credit (To record the lease) (To record lease payment) (To record interest expense) (To record amortization of the right-of-use asset)

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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Question

Oriole Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement.

1.		The lease term is 5 years, with equal annual rental payments of $3,937 at the beginning of each year.
2.		Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.
3.		The building has a fair value of $19,500, a book value to Oriole of $12,500, and a useful life of 6 years.
4.		At the end of the lease term, Oriole and Walsh expect there to be an unguaranteed residual value of $3,125.
5.		Oriole wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh.

Click here to view factor tables.

(b)

Using the original facts of the lease, show the journal entries to be made by both Oriole and Walsh in 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Oriole Journal Entries

Date

Account Titles and Explanation

Debit

Credit

(To record the lease)

(To record lease payment)

Walsh’s Journal Entries

Date	Account Titles and Explanation	Debit	Credit


	(To record the lease)


	(To record lease payment)


	(To record interest expense)


	(To record amortization of the right-of-use asset)

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