Recording Entries for Finance Lease-No Residual On January 1 of Year 1, Ashe Company entered into a five-year equipment lease (with no renewal options) requiring payments of $28,000, with the first payment due immediately. The lessor's implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of five years. a. How would Ashe Company classify the lease? Finance lease ◆ b. Prepare a schedule of the lease liability for the 5-year lease term. • Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Jan. 1, Year 1 Jan. 1, Year 1 $ Jan. 1, Year 2 Jan. 1, Year 3 Jan. 1, Year 4 Jan. 1, Year 5 Total $ Lease Payment 0 x $ 0 x 0 x 0x 0 x 0 $ Interest on Liability 0 0 x 0 x 0 x 0 x Lease Liability Change $ 0 $ 0 x 0 x 0x 0 0 0 $ Lease Liability 0 x 0 x 0 x XOOO 0 0 0 c. Prepare the entries for Ashe on (1) January 1 to record commencement of the lease and the first lease payment, and (2) December 31 to record the two year-end adjusting entries.
Recording Entries for Finance Lease-No Residual On January 1 of Year 1, Ashe Company entered into a five-year equipment lease (with no renewal options) requiring payments of $28,000, with the first payment due immediately. The lessor's implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of five years. a. How would Ashe Company classify the lease? Finance lease ◆ b. Prepare a schedule of the lease liability for the 5-year lease term. • Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Jan. 1, Year 1 Jan. 1, Year 1 $ Jan. 1, Year 2 Jan. 1, Year 3 Jan. 1, Year 4 Jan. 1, Year 5 Total $ Lease Payment 0 x $ 0 x 0 x 0x 0 x 0 $ Interest on Liability 0 0 x 0 x 0 x 0 x Lease Liability Change $ 0 $ 0 x 0 x 0x 0 0 0 $ Lease Liability 0 x 0 x 0 x XOOO 0 0 0 c. Prepare the entries for Ashe on (1) January 1 to record commencement of the lease and the first lease payment, and (2) December 31 to record the two year-end adjusting entries.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Recording Entries for Finance Lease-No Residual
On January 1 of Year 1, Ashe Company entered into a five-year equipment lease (with no
renewal options) requiring payments of $28,000, with the first payment due immediately.
The lessor's implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains
with the lessor at expiration of the lease. There is no option to purchase the property at the
end of the lease term and the equipment is expected to have no residual value. The
equipment has an estimated economic life of five years.
a. How would Ashe Company classify the lease? Finance lease ◆
b. Prepare a schedule of the lease liability for the 5-year lease term.
• Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded
amount for later calculations in the schedule.
Date
Jan. 1, Year 1
Jan. 1, Year 1 $
Jan. 1, Year 2
Jan. 1, Year 3
Jan. 1, Year 4
Jan. 1, Year 5
Total
$
Lease
Payment
0 x $
0 x
0 x
0 x
0 x
0 $
Interest
on Liability
Lease Liability
Change
0 $
0 x
0 x
0 x
0 x
0 $
0 x
0 x
0 x
0
0
0
$
Lease
Liability
0 x
0 x
0 x
0
0
0
c. Prepare the entries for Ashe on (1) January 1 to record commencement of the lease and
the first lease payment, and (2) December 31 to record the two year-end adjusting entries.
Transcribed Image Text:c. Prepare the entries for Ashe on (1) January 1 to record commencement of the lease and
the first lease payment, and (2) December 31 to record the two year-end adjusting entries.
• Note: Round your answers to the nearest whole dollar.
Date
Jan. 1
Jan. 1
Dec. 31
Dec. 31
Account Name
Right-of-Use Asset
Lease Liability
To record lease liability and right-of-use asset.
Lease Liability
Cash
To record receipt of lease payment.
To record interest.
Amortization Expense
Right-of-Use Asset
To record amortization.
>
Dr.
0
0
0
0
0
0
0
0
Cr.
0x
0x
0 x
0x
0x
0x
0 x
0x
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