Pina Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. The annual lease payment is $32,000 at the beginning of each year, and Pina's incremental borrowing rate is 9%, which is the same as the lessor's implicit rate.
Pina Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. The annual lease payment is $32,000 at the beginning of each year, and Pina's incremental borrowing rate is 9%, which is the same as the lessor's implicit rate.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Pina Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership,
contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the
present value of the lease payments is less than 90% of the fair value of the asset leased. The annual lease payment is $32,000 at the
beginning of each year, and Pina's incremental borrowing rate is 9%, which is the same as the lessor's implicit rate.
Prepare all the necessary journal entries for Falls Company (the lessor) for 2020, assuming the equipment is carried at a cost of
$176,000. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in
the order presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
(To record the recognition of the revenue each period)
(To record depreciation expense on the leased
equipment)
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