Whispering Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $51,025 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Whispering's incremental borrowing rate is 8%. Whispering is unaware of the rate being used by the lessor. At the end of the lease, Whispering has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Whispering uses the straight-line method of depreciation on similar owned equipment.
Whispering Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $51,025 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Whispering's incremental borrowing rate is 8%. Whispering is unaware of the rate being used by the lessor. At the end of the lease, Whispering has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Whispering uses the straight-line method of depreciation on similar owned equipment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ef 122.

Transcribed Image Text:Whispering Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual
rental payments of $51,025 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in
setting the payment schedule is 6%; Whispering's incremental borrowing rate is 8%. Whispering is unaware of the rate being used by
the lessor. At the end of the lease, Whispering has the option to buy the equipment for $5,000, considerably below its estimated fair
value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Whispering uses the straight-line
method of depreciation on similar owned equipment.
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Transcribed Image Text:Date
December
$1, 2021
Account Titles and Explanation
Amortization Expense
Right-of-Use Asset
(To record amortization.)
Non-current Assets
Right-of-Use Asset
Current Liabilities
Lease Liability
Long-term Liabilities
Lease Liability
WHISPERING STEEL COMPANY
Balance Sheet
December 31, 2022
V
Assets
Liabilities
$
$
Debit
tA
$
44686
Credit
44686
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