Carla Vista Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement.1. The lease term is 4 years, with equal annual rental payments of $4,901 at the beginning of each year.2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.3. The building has a fair value of $20,300, a book value to Carla Vista of $13,300, and a useful life of 5 years.4. At the end of the lease term, Carla Vista and Walsh expect there to be an unguaranteed residual value of $3,325.5. Carla Vista wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh.Click here to view factor tables. (b)Using the original facts of the lease, show the journal entries to be made by both Carla Vista and Walsh in 2020. (For calculationpurposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g.5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)Carla Vista Journal EntriesDateAccount Titles and ExplanationDebitCredit(To record the lease)(To record lease payment) Walsh's Journal EntriesDateAccount Titles and ExplanationDebitCredit(To record the lease)(To record lease payment)(To record interest expense)(To record amortization of the right-of-use asset)

Lessor and Lessee agreements: A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor and transferee, who accepts the transfer on such terms. Lessor: The transferor is called the lessor. Lessee: The transferee is called the lessee.Date Account titles and explanation Working Note Debit Amount ($) Credit Amount ($) 1 January 2020 Lease receivable account Debit 1 19,519 Cost of goods sold account Debit 10,763 To Sales revenue account Credit 16,982 To Inventory (Book value) account Credit (To record the lease) 13,300 1 January 2020 Cash account Debit 4,901 To Lease receivable account Credit (To record lease payment) 4,901 31st December 2020 Lease receivable account Debit 2 1,023 To Interest revenue account Credit (To record the Interest revenue) 1,023Date Account titles and explanation Working Note Debit Amount ($) Credit Amount ($) 1 January 2020 Right to use assets account Debit 1 16,982 To Lease liability account Credit (To record the lease) 16,982 1 January 2020 Lease liability account Debit 4,901 To cash account Credit (To record the first payment) 4,901 31st December 2020 Interest expenses account Debit 3 846 To Lease liability account Credit (To record Interest expenses) 846 31st December 2020 Depreciation expenses account Debit 4 4,245 To Right to use assets accounts Credit (To record amortization of the right of use asset) 4,245

Answered: Walsh's Journal Entries Date Account…

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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Carla Vista Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement.

1.		The lease term is 4 years, with equal annual rental payments of $4,901 at the beginning of each year.
2.		Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.
3.		The building has a fair value of $20,300, a book value to Carla Vista of $13,300, and a useful life of 5 years.
4.		At the end of the lease term, Carla Vista and Walsh expect there to be an unguaranteed residual value of $3,325.
5.		Carla Vista wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh.

Click here to view factor tables.

(b)
Using the original facts of the lease, show the journal entries to be made by both Carla Vista and Walsh in 2020. (For calculation
purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g.
5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Carla Vista Journal Entries
Date
Account Titles and Explanation
Debit
Credit
(To record the lease)
(To record lease payment)

Walsh's Journal Entries
Date
Account Titles and Explanation
Debit
Credit
(To record the lease)
(To record lease payment)
(To record interest expense)
(To record amortization of the right-of-use asset)

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