Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement. Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The followinginformation relates to the lease agreement.1. The term of the lease is 8 years with no renewal option, and the machinery has an estimatedeconomic life of 9 years.2. The cost of the machinery is $1,312,500, and the fair value of the asset on January 1, 2020, is$1,750,000.3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residualvalue of $125,000. Fat Choi Furniture estimates that the expected residual value at the endof the lease term will be $100,000. Fat Choi Furniture amortizes all of its leased equipmenton a straight-line basis.4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020.5. The collectibility of the lease payments is probable.6. Fat Choi Furniture's incremental borrowing rate is 6%. Leasing AG desires a 5% rate ofreturn on its investments, and Fat Choi Furniture is aware of it. Both companies consider thelease as finance lease.

The contract between lessor and lessee to use the asset for a certain period of time, and for a…

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Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement

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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