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Reporting Finance Lease, Gua eed Résic Lessee Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1, 2020. The underlying asset has an estimated life of six years and a fair value of $50,000, and the property reverts to Mac at the end of the lease term. Lease payments of $11,923 are payable on January 1 of each year and were set to yield Mac a return of 8%, which was known to Ash. The estimated residual value at the end of the lease term is $10,000 and is guaranteed by Ash Corporation. Ash expects the estimated residual value at the end of the lease term to be $10,000. The lease contains no purchase option.

Reporting Finance Lease, Gua eed Résic Lessee Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1, 2020. The underlying asset has an estimated life of six years and a fair value of $50,000, and the property reverts to Mac at the end of the lease term. Lease payments of $11,923 are payable on January 1 of each year and were set to yield Mac a return of 8%, which was known to Ash. The estimated residual value at the end of the lease term is $10,000 and is guaranteed by Ash Corporation. Ash expects the estimated residual value at the end of the lease term to be $10,000. The lease contains no purchase option.

FINANCIAL ACCOUNTING
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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Note the change in scenario on second photo (part "d")

Reporting Finance Lease, Guaranteed Residual-Lessee Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1, 2020. The underlying asset has an estimated life of six years and a fair value of $50,000, and the property reverts to Mac at the end of the lease term. Lease payments of $11,923 are payable on January 1 of each year and were set to yield Mac a return of 8%, which was known to Ash. The estimated residual value at the end of the lease term is $10,000 and is guaranteed by Ash Corporation. Ash expects the estimated residual value at the end of the lease term to be $10,000. The lease contains no purchase option.
Transcribed Image Text:Reporting Finance Lease, Guaranteed Residual-Lessee Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1, 2020. The underlying asset has an estimated life of six years and a fair value of $50,000, and the property reverts to Mac at the end of the lease term. Lease payments of $11,923 are payable on January 1 of each year and were set to yield Mac a return of 8%, which was known to Ash. The estimated residual value at the end of the lease term is $10,000 and is guaranteed by Ash Corporation. Ash expects the estimated residual value at the end of the lease term to be $10,000. The lease contains no purchase option.
d. Let's now assume that Ash Corporation expects the estimated residual value at the end of the lease term to be $3,500 instead. Prepare the entries for Ash Corporation for 2020. Note: Round your answers to the nearest whole dollar. Date Account Name Dr. Cr. Jan. 1, 2020 Right-of-Use Asset 45,221 X Lease Liability To record lease liability and right-of-use asset 45,221 x Jan. 1, 2020 Lease Liability 11,923 v Cash 11,923 v To record lease payment Dec. 31, 2020 Interest Expense 2.664 x Lease Liability 2,664 x To record interest Dec. 31, 2020 Amortization Expense 9,259 x Right-of-Use Asset 9,259 x To record amortization
Transcribed Image Text:d. Let's now assume that Ash Corporation expects the estimated residual value at the end of the lease term to be $3,500 instead. Prepare the entries for Ash Corporation for 2020. Note: Round your answers to the nearest whole dollar. Date Account Name Dr. Cr. Jan. 1, 2020 Right-of-Use Asset 45,221 X Lease Liability To record lease liability and right-of-use asset 45,221 x Jan. 1, 2020 Lease Liability 11,923 v Cash 11,923 v To record lease payment Dec. 31, 2020 Interest Expense 2.664 x Lease Liability 2,664 x To record interest Dec. 31, 2020 Amortization Expense 9,259 x Right-of-Use Asset 9,259 x To record amortization
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