XYZ Company, as lessee, enters into a lease agreement for equipment on July 1, 2015. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $782,757 are due on July 1 of each year, beginning July 1, 2015. 2. The fair value of the equipment on July 1, 2015 is $2,800,000. The equipment has an economic life of 6 years with no salvage value. 3. XYZ depreciates similar machinery it owns on the sum-of-the-years'-digits basis. 4. The lessee pays all executory costs. 5. XYZ's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments. Required For XYZ Company: (a) Indicate the type of lease XYZ Company has entered into and what accounting treatment is applicable. (b) Prepare the journal entries on XYZ's books that relate to 1. July 1, 2015. 2. 3. 4. SHARE OR NOST December 31, 2015. July 1, 2016. December 31, 2016. lease agreement for the following dates:

XYZ Company, as lessee, enters into a lease agreement for equipment on July 1, 2015. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $782,757 are due on July 1 of each year, beginning July 1, 2015. 2. The fair value of the equipment on July 1, 2015 is $2,800,000. The equipment has an economic life of 6 years with no salvage value. 3. XYZ depreciates similar machinery it owns on the sum-of-the-years'-digits basis. 4. The lessee pays all executory costs. 5. XYZ's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments. Required For XYZ Company: (a) Indicate the type of lease XYZ Company has entered into and what accounting treatment is applicable. (b) Prepare the journal entries on XYZ's books that relate to 1. July 1, 2015. 2. 3. 4. SHARE OR NOST December 31, 2015. July 1, 2016. December 31, 2016. lease agreement for the following dates:

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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