Question

Question 3 The following facts pertain to a noncancelable lease agreement between Novak Leasing Company and Splish Company, a lessee. May 1, 2017 Inception date: Annual lease payment due at the beginning of each year, beginning with May 1, 2017 Bargain-purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2017 Lessor's implicit rate Lessee's incremental borrowing rate $21,737.01 $3,800 5 years 10 years $68,000 $93,000 10 % 10 % The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs. The expected residual value of the equipment at the end of 5 (10) years is $12,000 ($0). Click here to view factor tables

Answer 1

Date	Accounts Titles and Explanation	Debit	Credit
5/1/17	Leased Assets	$93,000.00
	Lease Liability		$93,000.00
5/1/17	Lease Liability	$21,737.01
	Cash		$21,737.01
12/31/17	Interest Expense ($7,126.30 x 8/12)	$4,750.87
	Interest Payable		$4,750.87
12/31/17	Depreciation Expenses ($93,000/10 x 8/12)	$6,200.00
	Accumulated Depreciation		$6,200.00
1/1/17	Interest Payable	$4,750.87
	Interest Expense		$4,750.87
5/1/18	Interest Expense	$7,126.30
	Lease Liability	$14,610.71
	Cash		$21,737.01
12/31/18	Interest Expense ($5,665.23 x 8/12)	$3,776.82
	Interest Payable		$3,776.82
12/31/18	Depreciation Expenses	$9,300.00
	Accumulated Depreciation		$9,300.00