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Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,239 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,800, a book value of $6,800, and Pina expects a residual value of $6,300 at the end of the lease term. Pina set the lease payments with the intent of earning a 6% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,239 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,800, a book value of $6,800, and Pina expects a residual value of $6,300 at the end of the lease term. Pina set the lease payments with the intent of earning a 6% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

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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Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,239 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,800, a book value of $6,800, and Pina expects a residual value of $6,300 at the end of the lease term. Pina set the lease payments with the intent of earning a 6% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your answer is correct. Determine the nature of the lease to both Pina and Kingbird. The lease is a/an operating The lease is a/an operating lease to Kingbird. lease to Pina.
Transcribed Image Text:Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,239 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,800, a book value of $6,800, and Pina expects a residual value of $6,300 at the end of the lease term. Pina set the lease payments with the intent of earning a 6% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your answer is correct. Determine the nature of the lease to both Pina and Kingbird. The lease is a/an operating The lease is a/an operating lease to Kingbird. lease to Pina.
(b) Prepare all necessary journal entries for Kingbird in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation (To record the lease) (To record lease payment) Debit Credit
Transcribed Image Text:(b) Prepare all necessary journal entries for Kingbird in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation (To record the lease) (To record lease payment) Debit Credit
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