Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year.The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value.Vaughn depreciates similar machinery it owns on the straight-line basis.The lessee pays all executory costs.Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate.Vaughn has a December 31 year-end. Required: Indicate the type of lease that Vaughn Company has entered into and why.Prepare an amortization table for Vaughn in Excel.Prepare the journal entries on Vaughn’s books for the first two years of the lease.

As per the given information: Payment of lease - $422,689Term of noncancelable lease - 4 yearsFair…

Answered: Vaughn Company, as lessee, enters into…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement:

The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year.
The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value.
Vaughn depreciates similar machinery it owns on the straight-line basis.
The lessee pays all executory costs.
Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate.
Vaughn has a December 31 year-end.

Required:

Indicate the type of lease that Vaughn Company has entered into and why.
Prepare an amortization table for Vaughn in Excel.
Prepare the journal entries on Vaughn’s books for the first two years of the lease.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions