The classification of lease for both lessee and lessor. Given information: Lease term is 9 years. Lease doesn’t contain transfer of ownership. Lease doesn’t contain a purchase option. Economic life of asset is 9 years. Fair value of the asset is $1,349,328. Maintenance charges (general and administrative expenses) $5,600 payable at the end of each year. Implicit interest rate is 8% Annual lease payments are $200,000 due on Jan/1 each year
The classification of lease for both lessee and lessor. Given information: Lease term is 9 years. Lease doesn’t contain transfer of ownership. Lease doesn’t contain a purchase option. Economic life of asset is 9 years. Fair value of the asset is $1,349,328. Maintenance charges (general and administrative expenses) $5,600 payable at the end of each year. Implicit interest rate is 8% Annual lease payments are $200,000 due on Jan/1 each year
Solution Summary: The author explains that lease is a long-term rent agreement between two parties that is clubbed with other clauses relating to maintenance or sale.
Definition Definition Method of recording financial transactions in the book of original entry by debiting and crediting the accounts affected by a transaction using the golden rules of accrual accounting.
Chapter 18, Problem 18.15E
a.
To determine
The classification of lease for both lessee and lessor.
Given information:
Lease term is 9 years.
Lease doesn’t contain transfer of ownership.
Lease doesn’t contain a purchase option.
Economic life of asset is 9 years.
Fair value of the asset is $1,349,328.
Maintenance charges (general and administrative expenses) $5,600 payable at the end of each year.
Implicit interest rate is 8%
Annual lease payments are $200,000 due on Jan/1 each year
b.
To determine
To prepare: The amortization tables for the lease term.
Given information:
Lease term is 9 years.
Lease doesn’t contain transfer of ownership.
Lease doesn’t contain a purchase option.
Economic life of asset is 9 years.
Fair value of the asset is $1,349,328.
Maintenance charges (general and administrative expenses) $5,600 payable at the end of each year.
Implicit interest rate is 8%
Annual lease payments are $200,000 due on Jan/1 each year
c.
To determine
To prepare: The journal entries for lessor for year one.
Given information:
Lease term is 9 years.
Lease doesn’t contain transfer of ownership.
Lease doesn’t contain a purchase option.
Economic life of asset is 9 years.
Fair value of the asset is $1,349,328.
Cost of asset is $1,300,000.
Maintenance charges (general and administrative expenses) $5,600 payable at the end of each year.
Implicit interest rate is 8%
Annual lease payments are $200,000 due on Jan/1 each year
d.
To determine
To prepare: The journal entries for lessee for year one.
Given information:
Lease term is 9 years.
Lease doesn’t contain transfer of ownership.
Lease doesn’t contain a purchase option.
Economic life of asset is 9 years.
Fair value of the asset is $1,349,328.
Maintenance charges (general and administrative expenses) $5,600 payable at the end of each year.
Implicit interest rate is 8%
Annual lease payments are $200,000 due on Jan/1 each year
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