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Exercise 21A-19 a-d Sarasota Corporation leased equipment to Metlock, Inc. on January 1, 2017. The lease agreement called forPrepare all necessary journal entries for Metlock in 2017. (Credit account titles are automatically indented when the amountHow would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, MeAccounts Payable
Accumulated Depreciation-Building
Accumulated Depreciation-Leased Building
Accumulated Depreciation-Capital Leases
Accumulated Depreciation-Equipment
Accumulated Depreciation-Leased Equipment
Accumulated Depreciation-Leased Machinery
Accumulated Depreciation-Machinery
Advertising Expense
Amortization Expense
Airplanes
Buildings
Cash
Cost of Goods Sold
Deferred Gross Profit
Deposit Liability
Depreciation Expense
Equipment
Executory Costs
Executory Costs Payable
Gain on Disposal of Equipment
Gain on Disposal of Plant Assets
Gain on Lease
Insurance Expense
Interest Expense
Interest Payable
Interest Receivable
Interest Revenue
Inventory
Land
Leased Asset
Leased Buildings
Leased Equipment
Lease Expense
Leased Land
Lease Liability
Lease Receivable
Lease Revenue
Legal Expense
Loss on Capital Lease
Machinery
Maintenance and Repairs Expense
Notes Payable
Prepaid Lease Executory Costs
Prepaid Legal Fees
Property Tax Expense
Property Tax Payable
Rent Expense
Rent Payable
Rent Receivable
Rent Revenue
Revenue from Sale-Leaseback
Right-of-Use Asset
Salaries and Wages Expense
Sales Revenue
Selling Expenses
Trucks
Unearned Profit on Sale-Leaseback
Unearned Lease Revenue
Unearned Service Revenue

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Answer #1

Part 1

The lease is an operating lease to Metlock

The lease is an operating lease to Sarasota

The lease term is only 43% (3 ÷ 7) which is less than 75% of the economic life of the asset.

No bargain purchase, no transfer of ownership

Asset is not specialized

The present value of periodic rental for lessor $3559 (1256*2.83339) and the present of value of periodic rental for lessee $3496 (1256*2.78326) do not meet test of 90% of fair value

P V of annuity due of 1 for n = 3, i = 6% is 2.83339

PV of annuity due of 1 for n = 3, i = 8% is 2.78326

Part 2

Date

Account Titles and Explanation

Debit

Credit

1/1/17

Right-of-Use Asset

3496

Lease Liability

3496

(To record the lease)

1/1/17

Lease Liability

1256

Cash

1256

(To record lease liability)

12/31/17

Lease Expense

1256

Lease Liability ((3496-1256)*8%)

179

Right-of-Use Asset (balancing figure)

1077

Part 3

Lease liability

PV of annual rental payment

3496

PV of insurance payments ($200 X 2.78326)

557

Lease liability

$4053

Right-of-use asset

Initial measurement of lease liability

4053

Commissions paid

500

Prepaid rent

800

Right-of-use asset

$5353

Part D

Date

Account Titles and Explanation

Debit

Credit

1/1/17

Lease expense

1256

Cash

1256
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