Recording Entries for Finance Lease with Unguaranteed Residual Value—Lessee Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease. -- Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Lease term 5 years Economic life of the leased equipment 6 years Annual lease payments $1,098 Payment date (ﬁrst payment due at lease commencement) Annually on Jan. 1 Fair value of the leased equipment $5,200 Lessor Corp’s carrying value of the leased equipment $4,500 Rate implicit in the lease (known by lessee) 6.02% Estimated fair value of the equipment at the end of the lease term $400 1. Prepare a schedule of the lease liability for the ﬁrst two years of the lease term (attached in the first picture) 2. Provide journal entries relating to the lease for Lessee Corporation on January 1 and December 31 of Year 1 and Year 2. (attached in the second picture)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Recording Entries for Finance Lease with Unguaranteed Residual Value—Lessee

Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease. -- Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.

Lease term	5 years
Economic life of the leased equipment	6 years
Annual lease payments	$1,098
Payment date (ﬁrst payment due at lease commencement)	Annually on Jan. 1
Fair value of the leased equipment	$5,200
Lessor Corp’s carrying value of the leased equipment	$4,500
Rate implicit in the lease (known by lessee)	6.02%
Estimated fair value of the equipment at the end of the lease term	$400

1. Prepare a schedule of the lease liability for the ﬁrst two years of the lease term (attached in the first picture)

2. Provide journal entries relating to the lease for Lessee Corporation on January 1 and December 31 of Year 1 and Year 2. (attached in the second picture)

Lease Liability Schedule
b. Prepare a schedule of the lease liability for the first two years of the 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 $
Lease
Payment
Journal Entries
0 x $
0 x $
0 x $
Interest
on Liability
Lease Liability
Change
0✔ $
0 x $
0 x $
Lease Liability
$
0 X
0 x
0 x
0 x
0 x $
0 x $
0 x $

Lease Liability Schedule Journal Entries
c. Provide journal entries relating to the lease for Lessee Corporation on January 1 and December 31 of Year 1 and Year 2.
• Note: Round your answers to the nearest whole dollar.
Date
Jan. 1, Year 1
Jan. 1, Year 1
Dec. 31, Year 1
Dec. 31, Year 1
Jan. 1, Year 2
Dec. 31, Year 2
Dec. 31, Year 2
Account Name
To record asset and liability related to lease
To record lease payment
To record interest
To record amortization
To record lease payment
To record interest
To record amortization
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Dr.
O O
0
0
0
0
0
0
0
0
0
0
O
0
0
Cr.
0 x
0 x
0 x
0x
0x
0 x
0 x
0 x
0x
0X
0x
0x
0 x
0x

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The answer is incorrect. Can you at least calculate the value of the lease liability at the commencement in the lease?

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