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Pearl Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $51,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Pearl's incremental borrowing rate is 6%. Pearl is unaware of the rate being used by the lessor. At the end of the lease, Pearl has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Pearl uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Your answer is partially correct. Prepare the journal entries, that Pearl should record on December 31, 2025. (Credit account titles are automatically indented wher

Pearl Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $51,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Pearl's incremental borrowing rate is 6%. Pearl is unaware of the rate being used by the lessor. At the end of the lease, Pearl has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Pearl uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Your answer is partially correct. Prepare the journal entries, that Pearl should record on December 31, 2025. (Credit account titles are automatically indented wher

FINANCIAL ACCOUNTING
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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Pearl Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $51,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Pearl's incremental borrowing rate is 6%. Pearl is unaware of the rate being used by the lessor. At the end of the lease, Pearl has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Pearl uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Your answer is partially correct. Prepare the journal entries, that Pearl should record on December 31, 2025. (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 O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 58,971. List all debit entries before creant entries.) Date December 31, 2025 Account Titles and Explanation Right-of-Use Asset Lease Liability (To record leased asset and related liability.) Debit Credit
Transcribed Image Text:Pearl Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $51,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Pearl's incremental borrowing rate is 6%. Pearl is unaware of the rate being used by the lessor. At the end of the lease, Pearl has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Pearl uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Your answer is partially correct. Prepare the journal entries, that Pearl should record on December 31, 2025. (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 O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 58,971. List all debit entries before creant entries.) Date December 31, 2025 Account Titles and Explanation Right-of-Use Asset Lease Liability (To record leased asset and related liability.) Debit Credit
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