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The following facts pertain to a non-cancelable lease agreement between Sheridan Leasing Company and Pharoah Company, a lessee. Commencement date January 1, 2025 Annual lease payment due at the beginning of each year, beginning with January 1, 2025 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value of equipment at end of lease term Lease term Economic life of leased equipment Fair value of asset at January 1, 2025 $122,829 $51,000 $46,000 6 years 6 years $631,000

The following facts pertain to a non-cancelable lease agreement between Sheridan Leasing Company and Pharoah Company, a lessee. Commencement date January 1, 2025 Annual lease payment due at the beginning of each year, beginning with January 1, 2025 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value of equipment at end of lease term Lease term Economic life of leased equipment Fair value of asset at January 1, 2025 $122,829 $51,000 $46,000 6 years 6 years $631,000

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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990.
The following facts pertain to a non-cancelable lease agreement between Sheridan Leasing Company and Pharoah Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with January 1, 2025 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value of equipment at end of lease term Lease term Economic life of leased equipment Fair value of asset at January 1, 2025 Lessor's implicit rate Lessee's incremental borrowing rate January 1, 2025 $122,829 $51,000 $46,000 6 years 6 years $631,000 9% 9% The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.
Transcribed Image Text:The following facts pertain to a non-cancelable lease agreement between Sheridan Leasing Company and Pharoah Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with January 1, 2025 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value of equipment at end of lease term Lease term Economic life of leased equipment Fair value of asset at January 1, 2025 Lessor's implicit rate Lessee's incremental borrowing rate January 1, 2025 $122,829 $51,000 $46,000 6 years 6 years $631,000 9% 9% The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.
Prepare all of the journal entries for the lessee for 2025 and 2026 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (Credit account titles are automatically indented when 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. Round answers to O decimal places e.g. 5,275. Record journal entries in the order presented in the problem. List all debit entries before credit entries.) Date Jan. 1, 2025 Jan. 1, 2025 Dec. 31, 2025 Dec. 31, 2025 Jan. 1, 2026 Dec. 31, 2026 Dec. 31, 2026 Account Titles and Explanation Leased Asset Lease Liability (To record the lease.) Leased Asset Cash (To record first lease payment.) Interest Expense Lease Liability (To record interest.) Depreciation Expense Leased Asset (To record amortization.) Lease Liability Cash Interest Expense Lease Liability (To record interest.) Depreciation Expense Leased Asset (To record amortization.) Debit 603572 79562 96666.67 122829 96666.67 Credit
Transcribed Image Text:Prepare all of the journal entries for the lessee for 2025 and 2026 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (Credit account titles are automatically indented when 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. Round answers to O decimal places e.g. 5,275. Record journal entries in the order presented in the problem. List all debit entries before credit entries.) Date Jan. 1, 2025 Jan. 1, 2025 Dec. 31, 2025 Dec. 31, 2025 Jan. 1, 2026 Dec. 31, 2026 Dec. 31, 2026 Account Titles and Explanation Leased Asset Lease Liability (To record the lease.) Leased Asset Cash (To record first lease payment.) Interest Expense Lease Liability (To record interest.) Depreciation Expense Leased Asset (To record amortization.) Lease Liability Cash Interest Expense Lease Liability (To record interest.) Depreciation Expense Leased Asset (To record amortization.) Debit 603572 79562 96666.67 122829 96666.67 Credit
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