Assume that the lease contract involved an identified leased equipment at a cost of $120,000 by the lessor. The term of the lease is 6 years beginning December 31, 2021, with equal rental payments of $30,044 beginning December 31, 2021. The fair value of the equipment at commencement of the lease is $150,001. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments is probable. Prepare the lessor's journal entries on December 31, 2021, at commencement of the lease. Show all your work for partial credits.
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- Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
- Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?Assume that IBM leased equipment that was carried at a cost of $67,000 to Crane Company. The term of the lease is 5 years beginning December 31, 2019, with equal rental payments of $22,879 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $97,001. The equipment has a useful life of 5 years with no salvage value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $97,001. Prepare IBM’s December 31, 2020, entry to record the lease transaction with Crane Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount…Assume that IBM leased equipment that was carried at a cost of $120,000 to Swander Company. The term of the lease is 6 years beginning December 31, 2019, with equal rental payments of $30,044 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $150,001. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Prepare Swander's December 31, 2019, journal entries at commencement of the lease.
- Assume that IBM leased equipment that was carried at a cost of $115,000 to Crane Company. The term of the lease is 6 years beginning December 31, 2024, with equal rental payments of $29,654 beginning December 31, 2024. The fair value of the equipment at commencement of the lease is $144,998. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $144,998. Prepare IBM's December 31, 2025, entry to record the lease transaction with Crane Company. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places e.g. 5,275.) Account Titles and Explanation Cash…Assume that IBM leased equipment that was carried at a cost of $92,000 to Carla Vista Company. The term of the lease is 6 years December 31, 2019, with equal rental payments of $18,427 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $92,001. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $92,001.Prepare IBM’s December 31, 2020, entry to record the lease transaction with Carla Vista Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount…Assume that IBM leased equipment that was carried at a cost of $62,000 to Carla Vista Company. The term of the lease is 6 years beginning December 31, 2019, with equal rental payments of $18,427 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $92,001. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $92,001.Prepare IBM’s December 31, 2020, entry to record the lease transaction with Carla Vista Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit…
- Assume that IBM leased equipment that was carried at a cost of $142,000 to Cullumber Company. The term of the lease is 6 years beginning December 31, 2024, with equal rental payments of $35,176 beginning December 31, 2024. The fair value of the equipment at commencement of the lease is $171,998. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $171,998. Prepare IBM's December 31, 2025, entry to record the lease transaction with Cullumber Company. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places e.g. 5,275.) Account Titles and…Assume that IBM leased equipment that was carried at a cost of $182,000 to Sunland Company. The term of the lease is 6 years December 31, 2019, with equal rental payments of $30,044 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $146,905. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable.Prepare IBM’s December 31, 2019, journal entries at commencement of the lease. (Credit account titles are automatically indented when amount is entered. Do not indent manually. 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.)Click here to view factor tables. Date Account Titles and Explanation Debit Credit December 31, 2019 enter an account title To record the lease enter a…Assume that IBM leased equipment that was carried at a cost of $173,000 to Oriole Company. The term of the lease is 7 years December 31, 2019, with equal rental payments of $30,767 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $172,999. The equipment has a useful life of 7 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $172,999. Prepare IBM’s December 31, 2020, entry to record the lease transaction with Oriole Company.