Sandhill Limited has signed a lease agreement with Wildhorse Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Wildhorse, the lessor of $199,000. The terms of the lease are as follows: . . The lease term begins on January 1, 2022, and runs for 5 years. The lease requires payments of $45,359 at the beginning of each year starting January 1, 2022. At the end of the lease term, the equipment is to be returned to the lessor. Wildhorse' implied interest rate is 7%, while Sandhill's borrowing rate is 8%. Sandhill uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.
Sandhill Limited has signed a lease agreement with Wildhorse Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Wildhorse, the lessor of $199,000. The terms of the lease are as follows: . . The lease term begins on January 1, 2022, and runs for 5 years. The lease requires payments of $45,359 at the beginning of each year starting January 1, 2022. At the end of the lease term, the equipment is to be returned to the lessor. Wildhorse' implied interest rate is 7%, while Sandhill's borrowing rate is 8%. Sandhill uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Sandhill Limited has signed a lease agreement with Wildhorse Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Wildhorse, the lessor of $199,000. The terms of the lease
are as follows:
●
The lease term begins on January 1, 2022, and runs for 5 years.
The lease requires payments of $45,359 at the beginning of each year starting January 1, 2022.
At the end of the lease term, the equipment is to be returned to the lessor.
Wildhorse' implied interest rate is 7%, while Sandhill's borrowing rate is 8%. Sandhill uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.
Transcribed Image Text:Date
Jan. 1, 2022
Dec. 31, 2022
Dec. 31, 2022
Account Titles and Explanation
Cash
(To record lease payment)
Interest Expense
(To record interest)
Depreciation Expense
Accumulated Depreciation - Leased Equipment
(To record depreciation expense)
Debit
Credit
199000
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