Question

LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Sunland, Inc. for 3 years. The lease calls for annual lease payments of $15,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare LBJ's journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate is 9%. (Credit account titles are automatically indented when the 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 O decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

Answer 1

Solutions Given data, Annual lease payment .= $15000 useful life of the equipment 10 years, encremented borrowing rate 97 Doc.sent value of lease liability Annual lease paymentess plant = 15000 Core Byears) I 15000 x 205313 $37973 Journal entries & Date I Account title & explanation a Debit I credit 11120 37973 Hel20 Right of use Asset 37973 lease liability To Decood lease liability) tease liability 15000 - cash To record lease payment). lease expense, Soos lease liability (37973- 15000) Right afuse aller 1 15006 1213426 2068 (12932