Reporting Finance Lease, Guaranteed Residual-Lessee Mac Leasing Company (lessor) and Ash Corporation (lessee) signed a four-year lease on January 1 of Year 1. 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 beginning at the lease commencement and are set to yield Mac a return of 8%, which is 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 residual value at the end of the lease term to be $10,000. The lease contains no purchase option. Requireda. How would Ash Corporation classify the lease? Finance Lease b. What is the lease liability balance on January 1, the lease commencement date? Note: Round your answer to the nearest whole dollar. $ Estimated Residual = Guaranteed Residual, Estimated Residual< Guaranteed Residual Note: Round your answers to the nearest whole dollar.

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Reporting Finance Lease, Guaranteed Residual-Lessee Mac Leasing Company (lessor) and Ash
Corporation (lessee) signed a four-year lease on January 1 of Year 1. 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 beginning at the lease
commencement and are set to yield Mac a return of 8%, which is 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
residual value at the end of the lease term to be $10,000. The lease contains no purchase option.
Requireda. How would Ash Corporation classify the lease? Finance Lease b. What is the lease liability
balance on January 1, the lease commencement date? Note: Round your answer to the nearest whole
dollar. $ Estimated Residual = Guaranteed Residual, Estimated Residual < Guaranteed Residual Note:
Round your answers to the nearest whole dollar.
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 of Year 1. 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 beginning at the lease commencement and are set to yield Mac a return of 8%, which is 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 residual value at the end of the lease term to be $10,000. The lease contains no purchase option. Requireda. How would Ash Corporation classify the lease? Finance Lease b. What is the lease liability balance on January 1, the lease commencement date? Note: Round your answer to the nearest whole dollar. $ Estimated Residual = Guaranteed Residual, Estimated Residual < Guaranteed Residual Note: Round your answers to the nearest whole dollar.
a. How would Ash Corporation classify the lease?
Finance Lease
b. What is the lease liability balance on January 1, the lease commencement date?
• Note: Round your answer to the nearest whole dollar.
$
42,650
Estimated Residual = Guaranteed Residual Estimated Residual < Guaranteed Residual
d. Assume that Ash Corporation expects the residual value at the end of the lease term to be $3,500. Prepare the entries for Ash Corporation on January 1 and December 31 of Year 1.
• 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
Account Name
Right-of-Use Asset
Lease Liability
To record asset and liability related to lease
Lease Liability
Cash
To record lease payment
Interest Expense
Lease Liability
To record interest
Amortization Expense
Right-of-Use Asset
To record amortization
<<
<<
Dr.
49,150
0
11,923
0
2,458
0
0
O
Cr.
0x
49,150 X
0✔
11,923
0 x
2,458 X
0 x
0 x
Transcribed Image Text:a. How would Ash Corporation classify the lease? Finance Lease b. What is the lease liability balance on January 1, the lease commencement date? • Note: Round your answer to the nearest whole dollar. $ 42,650 Estimated Residual = Guaranteed Residual Estimated Residual < Guaranteed Residual d. Assume that Ash Corporation expects the residual value at the end of the lease term to be $3,500. Prepare the entries for Ash Corporation on January 1 and December 31 of Year 1. • 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 Account Name Right-of-Use Asset Lease Liability To record asset and liability related to lease Lease Liability Cash To record lease payment Interest Expense Lease Liability To record interest Amortization Expense Right-of-Use Asset To record amortization << << Dr. 49,150 0 11,923 0 2,458 0 0 O Cr. 0x 49,150 X 0✔ 11,923 0 x 2,458 X 0 x 0 x
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