Shamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Pharoah Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Pharoah has the option to purchase the equipment for $23,000 upon termination of the lease. It is not reasonably certain that Pharoah will exercise this option. 2. The equipment has a cost of $260,000 and fair value of $290,000 to Shamrock Leasing. The useful economic life is 2 years, with a residual value of $23,000. 3. Shamrock Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Shamrock Leasing is probable.
Shamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Pharoah Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Pharoah has the option to purchase the equipment for $23,000 upon termination of the lease. It is not reasonably certain that Pharoah will exercise this option. 2. The equipment has a cost of $260,000 and fair value of $290,000 to Shamrock Leasing. The useful economic life is 2 years, with a residual value of $23,000. 3. Shamrock Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Shamrock Leasing is probable.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Shamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Pharoah Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:
Click here to view factor tables. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf
| 1. | Pharoah has the option to purchase the equipment for $23,000 upon termination of the lease. It is not reasonably certain that Pharoah will exercise this option. | |
| 2. | The equipment has a cost of $260,000 and fair value of $290,000 to Shamrock Leasing. The useful economic life is 2 years, with a residual value of $23,000. | |
| 3. | Shamrock Leasing desires to earn a return of 5% on its investment. | |
| 4. | Collectibility of the payments by Shamrock Leasing is probable. |
Click here to view factor tables. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf
(a)
Prepare the journal entries on the books of Shamrock Leasing to reflect the payments received under the lease and to recognize income for the years 2020 and 2021. (Credit account titles are automatically indented when 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.)
|
Date
|
Account Titles and Explanation
|
Debit
|
Credit
|
|---|---|---|---|
|
|
|
|
enter an account title for the
|
enter a debit amount
|
enter a credit amount
|
|
|---|---|---|---|---|
|
|
enter an account title for the journal entry on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|
|
|
enter an account title for the journal entry on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|
|
|
enter an account title for the journal entry on January 1 2020
|
enter a debit amount
|
enter a credit amount
|
|
|
|
|
|
enter an account title
|
enter a debit amount
|
enter a credit amount
|
|---|---|---|---|
|
|
enter an account title
|
enter a debit amount
|
enter a credit amount
|
|
|
enter an account title
|
enter a debit amount
|
enter a credit amount
|
|
|
|
|
enter an account title
|
enter a debit amount
|
enter a credit amount
|
|---|---|---|---|
|
|
enter an account title
|
enter a debit amount
|
enter a credit amount
|
|
|
enter an account title
|
enter a debit amount
|
enter a credit amount
|
(b)
Assuming that Pharoah exercises its option to purchase the equipment on December 31, 2021, prepare the journal entry to record the sale on Shamrock Leasing’s books. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
Date
|
Account Titles and Explanation
|
Debit
|
Credit
|
|---|---|---|---|
|
12/31/21
|
enter an account title for the journal entry on December 31 2021
|
enter a debit amount
|
enter a credit amount
|
|
enter an account title for the journal entry on December 31 2021
|
enter a debit amount
|
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