Question

PLEASE SHOW THE STEPS

Part VI: Lessee and Lessor on January 1, 2019 enter into a 4-year non-cancelable lease, with two renewal options of one year each, for equipment having a useful life of 12 years. Lessee's incremental borrowing rate is 8% while Lessor's implicit rate is 5% and known to Lessee. The Lessee uses the straight-line method of depreciation. The lease contains the following provisions: 1. Annual rental payments of $20,000 payable at the beginning of each year, starting January 1, 2019. 2. A termination penalty assures the renewal of the lease for the additional two years. 3. There is a guaranteed residual value at the end of the lease for $10,000, 4. The equipment has a cost of $110,000 and fair value of $114,052. Collectability of lease payments is probable. INSTRUCTIONS: (a) What kind of lease is this to the lessee and lessor?! (b) Prepare the journal entries on the books of Lessee and Lessor through December 31, 2024. (c) Prepare the journal entries on the books of Lessee and Lessor through December 31, 2024, assuming that the residual value is unguaranteed. (d) What if there is a bargain purchase option of $10,000 at the end of the lease.

Answer 1

Answer of @ what kind of lease. Is this to the dessec and lesson. The risks and rewards inherent in the assets arc transferred to the lessce, so, it is a finance lease. 6. Joumal entries on-the books lesscc Ez lessons Journal Creditle] General Lease Receivable To Assets Debit cah 114,052 114 052 30,000 19,000 At the time of fost_payment Cash account Lease receivable finance income (291000X54) Accounting for lease Leased asset Leax liability 1000 114,052 114,05a 19,000 Lease liability interest Expense 1000 cash. 20,000

© Prgparc Tournal entics on the books y lessee fe lesson? ☺ * Journal entries posted of the start of the lease contract Credit (6) General Journal Lease Receivable To assets Debit (6) 114,0sa 114,asa At the time of first pagment 20,000 19,000 1141052 Lease receivable finance income (20,000x5-1.) Accounting for lease Leased asset Lease liability Lease Lichility interest Expense cash. пи,б, 19,000 1000 201000 O if there is a bargain pexchaise option of flo, cico at The Ench of the lease o . --> Tównd Entries posted at the start of the lease contract

Tournal Entrics & credited) Debit C42 94,05) 2X1052 20,000 19,000 Gioneral Tournal Lease Receivable Asnts At the time of forst_pamcent. . Cash Lease Recevable finance income (690,000x54.) Accounting for lease Leased asset Lease Liability Lease liability interest Expenses cash. 1000 904,052 ನಿನಿ -4 z೦೩ 14,000 1000 201000