Question

Blue Corporation entered into a lease agreement on January 1, 2020, to provide Crane Company with a piece of machinery. The terms of the lease agreement were as follows.

1.		The lease is to be for 3 years with rental payments of $15,180 to be made at the beginning of each year.
2.		The machinery has a fair value of $64,000, a book value of $40,000, and an economic life of 8 years.
3.		At the end of the lease term, both parties expect the machinery to have a residual value of $25,000, none of which is guaranteed.
4.		The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature.
5.		The implicit rate is 6%, which is known by Dawkins.
6.		Collectibility of the payments is probable.

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Evaluate the criteria for classification of the lease, and describe the nature of the lease.

For the lessee, it is a                                                                       operating leasesales-type leasefinance lease, and for the lessor, it is a                                                                       sales-type leaseoperating leasefinance lease.

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List of Accounts

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Prepare the amortization schedules Crane will use over the lease term.

CRANE COMPANY Lease Amortization Schedule Annuity-Due Basis
Date		Annual Payment		Interest on Liability		Reduction of Lease Liability		Lease Liability
1/1/20								$
1/1/20		$		$		$
1/1/21
1/1/22

Lease Expense Schedule

Date

(A) Straight-Line Expense

(B) Interest on Lease Liability

(C) Amortization of Right-of-Use Asset (and Liability) (A-B)

Carrying Value of Right-of-Use Asset

1/1/20

$

12/31/20

$

$

$

12/31/21

12/31/22

eTextbook and Media

List of Accounts

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Prepare the 2020 journal entries for Crane. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease)
Jan. 1
	(To record first lease payment)
Dec. 31
	(To record lease expense and amortization)

Answer 1

For the lessee, it is a for the lessor, it is a Finance lease Sales-type lease Annual Rental Payment P.V of an annuity for n=3& I = 6% P.V of Periodic rental payments 15180 2.83339 43011 18 Prepare the amortization schedules Crane will use over the lease term CRANE COMPANY Lease Amortization Schedule Annuity-Due Basis Interest @6% on Lease Liability (Col. 3) Year Annual Payment Reduction in Lease Liability (Col. 2-Col.3) Lease Liability 25 1/12020 1/1/2020 1/1/2021 1/1/2022 27 15,180 15,180 15,180 43,011 27,831 14,321 (0) 15,180 13,510 14,321 1,670 859

Lease Expense Schedule (B) Interest on Lease Liability 32 33 (A) 34 Date Straight-Line Expense 35 36 37 1/12020 38 12/31/2020 39 12/31/2021 40 12/31/2022 Amortization of Right-of-Use Asset Carrying Value of (and Liability) Right-of-Use Asset (A-B) 1,670 15,180 15,180 15,180 43,011 29,501 15,180 13,510 14,321 15,180 859 Date Debit Credit 43,011 46 43,011 42 Prepare the 2020 journal entries for Crane. 43 44 Account Ttle and Explanation 45 1/1/2020 Right -of use Asset Lease Liability (To record lease liability) 48 1/1/2020 Lease Liability Cash (To record first lease payment) 15,180 15,180 15,180 31-Dec Lease expense Lease Liability Right of use Asset (To record lease expense and amortization) 1,670 13,510