Sheridan, 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 Sunland Corporation. The agreement stipulates the following. Rental payments of $8,799 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. Sheridan must reimburse Sunland 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. Sheridan must make a payment of $500 with the rental payment each period to cover the insurance Sunland has on the warehouse. Sheridan paid legal fees of $1,000 in executing the lease. Assuming Sheridan's incremental borrowing rate is 5% 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 Sheridan. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. 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.)
Sheridan, 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 Sunland Corporation. The agreement stipulates the following. Rental payments of $8,799 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. Sheridan must reimburse Sunland 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. Sheridan must make a payment of $500 with the rental payment each period to cover the insurance Sunland has on the warehouse. Sheridan paid legal fees of $1,000 in executing the lease. Assuming Sheridan's incremental borrowing rate is 5% 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 Sheridan. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
i.4
Transcribed Image Text:—
Your answer is partially correct.
‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒‒
Sheridan, 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
Sunland Corporation. The agreement stipulates the following.
Rental payments of $8,799 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.
Sheridan must reimburse Sunland 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.
Sheridan must make a payment of $500 with the rental payment each period to cover the insurance Sunland has on the
warehouse.
Sheridan paid legal fees of $1,000 in executing the lease.
Assuming Sheridan's incremental borrowing rate is 5% 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 Sheridan. (List all debit entries before credit entries. Credit account titles are
automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and
enter o for the amounts. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O
decimal places, e.g. 5,275.)
Transcribed Image Text:Click here to view factor tables.
Account Titles and Explanation
Lease Expense
Right-of-Use Asset
Lease Liability
Debit
800
38368
Credit
39168
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