Answered: The following facts pertain to a…

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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Question

The following facts pertain to a non-cancelable lease agreement between Cullumber Leasing Company and Marin Company, a lessee.

Commencement date	May 1, 2020
Annual lease payment due at the beginning of
each year, beginning with May 1, 2020	$15,138.16
Bargain purchase option price at end of lease term	$4,000
Lease term	5	years
Economic life of leased equipment	10	years
Lessor’s cost	$50,000
Fair value of asset at May 1, 2020	$68,000
Lessor’s implicit rate	8	%
Lessee’s incremental borrowing rate	8	%

The collectibility of the lease payments by Cullumber is probable.

Click here to view factor tables.
(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Discuss the nature of this lease to Marin.

The nature of this lease to Marin is a

lease.

eTextbook and Media

List of Accounts

Discuss the nature of this lease to Cullumber.

The nature of this lease to Cullumber is a

lease.

eTextbook and Media

List of Accounts

Prepare a lease amortization schedule for Marin for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)

MARIN COMPANY (Lessee) Lease Amortization Schedule
Date	Annual Lease Payment Plus BPO	Interest on Liability	Reduction of Lease Liability	Lease Liability
5/1/20	$	$	$	$
5/1/20
5/1/21
5/1/22
5/1/23
5/1/24
4/30/25
	$	$	$

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List of Accounts

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. Marin’s annual accounting period ends on December 31. Reversing entries are used by Marin. (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	Account Titles and Explanation	Debit	Credit



	(To record the lease)



	(To record the first lease payment)



	(To record interest expense)



	(To record amortization of the right-of-use asset)



	(To record interest expense)



	(To record amortization of the right-of-use asset)

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