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The following facts pertain to a non-cancelable lease agreement between Crane Leasing Company and Larkspur Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate May 1, 2020 $17,865.02 $7,000 5 years 10 years $65,000 $85,000 The collectibility of the lease payments by Crane is probable. 6 % 6 %

The following facts pertain to a non-cancelable lease agreement between Crane Leasing Company and Larkspur Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate May 1, 2020 $17,865.02 $7,000 5 years 10 years $65,000 $85,000 The collectibility of the lease payments by Crane is probable. 6 % 6 %

FINANCIAL ACCOUNTING
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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The following facts pertain to a non-cancelable lease agreement between Crane Leasing Company and Larkspur Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate May 1, 2020 $17,865.02 $7,000 5 years 10 years $65,000 $85,000 The collectibility of the lease payments by Crane is probable. 6 % 6 %
Transcribed Image Text:The following facts pertain to a non-cancelable lease agreement between Crane Leasing Company and Larkspur Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate May 1, 2020 $17,865.02 $7,000 5 years 10 years $65,000 $85,000 The collectibility of the lease payments by Crane is probable. 6 % 6 %
Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Larkspur's annual accounting period ends on December 31. Reversing entries are used by Larkspur. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.) Date 5/1/20 5/1/20 12/31/20 12/31/20 1/1/21 5/1/21 12/31/21 Account Titles and Explanation 12/31/21 Right-of-Use Asset Lease Liability (To record the lease) Lease Liability Cash (To record the first lease payment) Interest Expense Lease Liability (To record interest expense) Show Transcribed Text Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) Lease Liability Interest Expense Lease Liability Interest Expense Cash Interest Expense Lease Liability (To record interest expense) Amortization Expense Right-of-Use Asset 3 (To record amortization of the right-of-use asset) Debit 85000 17865.02 2685.39 5666.66 Credit 85( 17865 2685 5666
Transcribed Image Text:Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Larkspur's annual accounting period ends on December 31. Reversing entries are used by Larkspur. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.) Date 5/1/20 5/1/20 12/31/20 12/31/20 1/1/21 5/1/21 12/31/21 Account Titles and Explanation 12/31/21 Right-of-Use Asset Lease Liability (To record the lease) Lease Liability Cash (To record the first lease payment) Interest Expense Lease Liability (To record interest expense) Show Transcribed Text Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) Lease Liability Interest Expense Lease Liability Interest Expense Cash Interest Expense Lease Liability (To record interest expense) Amortization Expense Right-of-Use Asset 3 (To record amortization of the right-of-use asset) Debit 85000 17865.02 2685.39 5666.66 Credit 85( 17865 2685 5666
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