Prepare the journal entries required by the lessee and the lessor on 12/31/Year 5. On January 1, Year 1, Conan Company has a piece of equipment with a cost of$295,000 and a fair value of $295,000. On that date, Conan Company leases theasset to Kimmel Company for a 5-year term at an interest rate of 10%. Theannual lease payment is due at the beginning of each year, and the first paymentis to be collected at the inception date. The leased asset will revert back toConan Company at the end of the lease term.The equipment has an estimated residual value of $22,250 which is guaranteedby the lessee. The lessee expects the fair value of the asset to be $12,000 at theend of the lease.The lessee has an estimated useful life of 6 years.Both Conan Company and Kimmel Company have a calendar-year reportingperiod.INSTRUCTIONSPart A. Assume the lease transfers substantially all of the risks andrewards of ownership to Kimmel Company.

Cost of Equipment $ 295000 Fair Value of Equipment $ 295000 Lease Term 5 years Lease Rent is…

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Business

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Prepare the journal entries required by the lessee and the lessor on 12/31/Year 5.

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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Question

Prepare the journal entries required by the lessee and the lessor on 12/31/Year 5.

On January 1, Year 1, Conan Company has a piece of equipment with a cost of
$295,000 and a fair value of $295,000. On that date, Conan Company leases the
asset to Kimmel Company for a 5-year term at an interest rate of 10%. The
annual lease payment is due at the beginning of each year, and the first payment
is to be collected at the inception date. The leased asset will revert back to
Conan Company at the end of the lease term.
The equipment has an estimated residual value of $22,250 which is guaranteed
by the lessee. The lessee expects the fair value of the asset to be $12,000 at the
end of the lease.
The lessee has an estimated useful life of 6 years.
Both Conan Company and Kimmel Company have a calendar-year reporting
period.
INSTRUCTIONS
Part A. Assume the lease transfers substantially all of the risks and
rewards of ownership to Kimmel Company.

Definition Definition Method of recording financial transactions in the book of original entry by debiting and crediting the accounts affected by a transaction using the golden rules of accrual accounting.

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