The lease asset had a retail cash selling price of $110,000. Its useful life was six years with no residual value (straight-line depreciation). Annual lease payments at the beginning of each year were $22,961, beginning January 1. Lessor’s implicit rate when calculating annual rental payments was 10%. Costs of $2,269 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 $110,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $110,000 to acquire the asset (sales-type lease). 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 $90,000 to acquire the asset (sales-type lease).
The lease asset had a retail cash selling price of $110,000. Its useful life was six years with no residual value (straight-line depreciation). Annual lease payments at the beginning of each year were $22,961, beginning January 1. Lessor’s implicit rate when calculating annual rental payments was 10%. Costs of $2,269 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 $110,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $110,000 to acquire the asset (sales-type lease). 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 $90,000 to acquire the asset (sales-type lease).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Terms of a lease agreement and related facts were as follows:
- The lease asset had a retail cash selling price of $110,000. Its useful life was six years with no residual value (straight-line
depreciation ). - Annual lease payments at the beginning of each year were $22,961, beginning January 1.
- Lessor’s implicit rate when calculating annual rental payments was 10%.
- Costs of $2,269 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 $110,000 to acquire the asset (operating lease).
2. The lease term is six years and the lessor paid $110,000 to acquire the asset (sales-type lease). 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 $90,000 to acquire the asset (sales-type lease).
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