Pharoah Company, a machinery dealer, leased a machine to Sheridan Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2025. Pharoah had purchased the machine during 2024 for $150,000. Collectibility of lease payments by Pharoah is probable. Pharoah set the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Pharoah at the termination of the lease. Assume that Sheridan Corporation does not know the rate implicit in the lease used by Pharoah, and Sheridan's incremental borrowing rate is 9%. In addition, assume that Sheridan incurs initial direct costs of $19,000. Click here to view factor tables. (a) Your answer is correct. Compute the amount of the lease liability and right-of-use asset for Sheridan. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Lease liability $ Right-of-use asset $ 164700 183700

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Question

Subject : Accounting

 

 

Prepare all necessary journal entries for Sheridan for 2025. (List all debit entries before credit 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 o for the amounts. Round answers to O decimal places e.g. 5,275. Record journal entries in the order presented in the problem.)
Date
/25
/25
(31/25
(31/25
Account Titles and Explanation
Right-of-Use Asset
Lease Liability
Cash
(To record the lease)
Lease Liability
Cash
(To record the first lease payment)
Insurance Expense
Lease Liability
(To record interest expense)
Amortization Expense
Right-of-Use Asset
(To record amortization of the right-of-use asset)
Debit
183700
27300
[0]
11043
21125
Credit
150000
19000
27300
11043
21125
Transcribed Image Text:Prepare all necessary journal entries for Sheridan for 2025. (List all debit entries before credit 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 o for the amounts. Round answers to O decimal places e.g. 5,275. Record journal entries in the order presented in the problem.) Date /25 /25 (31/25 (31/25 Account Titles and Explanation Right-of-Use Asset Lease Liability Cash (To record the lease) Lease Liability Cash (To record the first lease payment) Insurance Expense Lease Liability (To record interest expense) Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) Debit 183700 27300 [0] 11043 21125 Credit 150000 19000 27300 11043 21125
Pharoah Company, a machinery dealer, leased a machine to Sheridan Corporation on January 1, 2025. The lease is for an 8-year period
and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2025.
Pharoah had purchased the machine during 2024 for $150,000. Collectibility of lease payments by Pharoah is probable. Pharoah set
the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to
Pharoah at the termination of the lease. Assume that Sheridan Corporation does not know the rate implicit in the lease used by
Pharoah, and Sheridan's incremental borrowing rate is 9%. In addition, assume that Sheridan incurs initial direct costs of $19,000.
Click here to view factor tables.
(a)
Your answer is correct.
Compute the amount of the lease liability and right-of-use asset for Sheridan. (For calculation purposes, use 5 decimal places as
displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.)
Lease liability
Right-of-use asset
$
164700
183700
Transcribed Image Text:Pharoah Company, a machinery dealer, leased a machine to Sheridan Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $27,300 at the beginning of each year. The first payment is received on January 1, 2025. Pharoah had purchased the machine during 2024 for $150,000. Collectibility of lease payments by Pharoah is probable. Pharoah set the annual rental to ensure a 7% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Pharoah at the termination of the lease. Assume that Sheridan Corporation does not know the rate implicit in the lease used by Pharoah, and Sheridan's incremental borrowing rate is 9%. In addition, assume that Sheridan incurs initial direct costs of $19,000. Click here to view factor tables. (a) Your answer is correct. Compute the amount of the lease liability and right-of-use asset for Sheridan. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Lease liability Right-of-use asset $ 164700 183700
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