Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured the equipment at a cost of $200,000. The equipment has a fair value of $260,000. Information related to the lease appears below: Lease term 5 years First lease payment January 1, 2023 Subsequent lease payments December 31, 2023, 2024, 2025, 2026 Economic life of the equipment 6 years Estimated value of equipment at end of economic life $0 Purchase option, reasonably expected to be exercised by Oscar $20,000 Implicit and incremental borrowing rate 8% Prepare the entries to record the lease and the first payment for both the lessee and the lessor on January 1, 2023.
Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured the equipment at a cost of $200,000. The equipment has a fair value of $260,000. Information related to the lease appears below: Lease term 5 years First lease payment January 1, 2023 Subsequent lease payments December 31, 2023, 2024, 2025, 2026 Economic life of the equipment 6 years Estimated value of equipment at end of economic life $0 Purchase option, reasonably expected to be exercised by Oscar $20,000 Implicit and incremental borrowing rate 8% Prepare the entries to record the lease and the first payment for both the lessee and the lessor on January 1, 2023.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured the
equipment at a cost of $200,000. The equipment has a fair value of $260,000.
Information related to the lease appears below:
Lease term 5 years
First lease payment January 1, 2023
Subsequent lease payments December 31, 2023, 2024, 2025, 2026
Economic life of the equipment 6 years
Estimated value of equipment at end of economic life $0
Purchase option, reasonably expected to be exercised by Oscar $20,000
Implicit and incremental borrowing rate 8%
Prepare the entries to record the lease and the first payment for both the lessee and the lessor on
January 1, 2023.
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