Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following.● Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease.● Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year.● Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse.● Shamrock paid legal fees of $3,000 in executing the lease.Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)Click here to view factor tables.Account Titles and ExplanationDebitCredit PLEASE FILL OUT ONLY THES THREE BOXES NOT MORE WITH THE ACCOUNT TITLES AND THE AMOUNTS PLEASE READ THE QUESTION CAREFULLY.

Present value of lease rentals ($9,435 x ((1-1.09^-5)/0.09) x 1.09 $40,002 Lease liability…

Answered: Shamrock, Inc. has entered an agreement…

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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Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following.

●		Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease.
●		Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year.
●		Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse.
●		Shamrock paid legal fees of $3,000 in executing the lease.

Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)

Click here to view factor tables.

Account Titles and Explanation	Debit	Credit

PLEASE FILL OUT ONLY THES THREE BOXES NOT MORE WITH THE ACCOUNT TITLES AND THE AMOUNTS PLEASE READ THE QUESTION CAREFULLY.

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