Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 10%. d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%. 3. The lease term is six years and the lessor paid $85,000 to acquire the asset.

Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 10%. d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%. 3. The lease term is six years and the lessor paid $85,000 to acquire the asset.

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Terms of a lease agreement and related facts were as follows:
a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line
depreciation).
b. Annual lease payments at the beginning of each year were $20,873, beginning January 1.
c. Lessor's implicit rate when calculating annual rental payments was 10%.
d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor.
Required:
Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal
year-end under each of the following three independent assumptions:
1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease).
2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable
(net investment) by initial direct costs reduces the effective rate of interest to 9%.
3. The lease term is six years and the lessor paid $85,000 to acquire the asset.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
No
The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease) prepare the appropriate
entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your
intermediate and final answers to nearest whole dollar.
1
2
3
Date
January 01
January 01
December 31
Required 3
Cash
> Answer is not complete.
General Journal
Deferred lease revenue
Deferred initial direct cost
Cash
Depreciation expense
Accumulated depreciation
< Required 1
✓
››
X
X
Required 2 >
Debit
20,873✔
2,062✔
16.667 X
Credit
20,873 ✔
2,062✔
16.667 X
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