Can you show work? TY Problem 2On January 1, Year 1, Marco Company leased equipment from Wilson Corp. Lease payments of$200,000 are to be made every January 1 for 10 years. Title does not pass at the end of thelease term, and the lease does not include a bargain purchase option. The lease is non-cancelable.Additional Facts:The lease includes a guaranteed residual value of $40,000.The estimated useful life of the equipment on January 1, Year 1, is 25 years.The rate implicit in the lease is unknown to Marco.Marco's incremental borrowing rate is 8%.The fair value of the equipment is $1,800,000 on January Year 1.1. Record the journal entries for Marco on January 1, Year 1.2. Record the journal entries for Marco on January 1, Year 2. (ignore end-of-year accruals)3. Record the journal entries for Marco on January 1, Year 3. (ignore end-of-year accruals)

Answered: Problem 2 On January 1, Year 1, Marco…

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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Can you show work? TY

Problem 2
On January 1, Year 1, Marco Company leased equipment from Wilson Corp. Lease payments of
$200,000 are to be made every January 1 for 10 years. Title does not pass at the end of the
lease term, and the lease does not include a bargain purchase option. The lease is non-
cancelable.
Additional Facts:
The lease includes a guaranteed residual value of $40,000.
The estimated useful life of the equipment on January 1, Year 1, is 25 years.
The rate implicit in the lease is unknown to Marco.
Marco's incremental borrowing rate is 8%.
The fair value of the equipment is $1,800,000 on January Year 1.
1. Record the journal entries for Marco on January 1, Year 1.
2. Record the journal entries for Marco on January 1, Year 2. (ignore end-of-year accruals)
3. Record the journal entries for Marco on January 1, Year 3. (ignore end-of-year accruals)

Expert Solution

Step 1

Lease Liability:

Lease liability is the amount of liability that a lessee should record in the financial statements, it can be treated as the rent for using leased asset. The generally accepted accounting principles require companies to record the remaining lease liability after every lease payment.

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