P15-12 Lessee and lessor; lessee guaranteed residual value LO15-2, LO15-6 On January 1, 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Ghosh. • The equipment cost Ghosh $956,000 and has an expected useful life of five years. • • • Ghosh expects the residual value at December 31, 2027, will be $300,000. Negotiations led to the lessee guaranteeing a $340,000 residual value. Equal payments under the finance/sales-type lease are $200,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Karrier is aware that Ghosh used a 5% interest rate when calculating lease payments. Required: 1. Prepare the appropriate entries for both Karrier and Ghosh on January 1, 2024, to record the lease.

P15-12 Lessee and lessor; lessee guaranteed residual value LO15-2, LO15-6 On January 1, 2024, Ghosh Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Ghosh. • The equipment cost Ghosh $956,000 and has an expected useful life of five years. • • • Ghosh expects the residual value at December 31, 2027, will be $300,000. Negotiations led to the lessee guaranteeing a $340,000 residual value. Equal payments under the finance/sales-type lease are $200,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Karrier is aware that Ghosh used a 5% interest rate when calculating lease payments. Required: 1. Prepare the appropriate entries for both Karrier and Ghosh on January 1, 2024, to record the lease.

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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7...new...continue b Sage Industries and Pronghorn Inc. enter into an agreement that requires Pronghorn Inc. to build three diesel-electric engines to Sage’s specifications. Upon completion of the engines, Sage has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $405,443 each January 1, starting January 1, 2020.Sage’s incremental borrowing rate is 8%. The implicit interest rate used by Pronghorn and known to Sage is 7%. The total cost of building the three engines is $2,685,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sage depreciates similar equipment on a straight-line basis. At the end of the lease, Sage assumes title to the engines. Collectibility of the lease payments is probable. (b) Prepare the journal entry to record the transaction on January 1, 2020, on the books of…
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