Question

Wildhorse Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years, with equal annual rental payments of $5,200 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for $3,000, which Wildhorse is reasonably certain it will exercise as it believes the fair value of the machinery will be at least $5,000. The machinery has a useful life of 10 years and a fair value of $45,000. The implicit rate of the lease is not known to Wildhorse. Wildhorse's incremental borrowing rate is 9%. Prepare Wildhorse's 2020 journal entries. (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 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Click here to view factor tables. Date Account Titles and Explanation Debit Credit (To record lease liability) (To record lease payment) (To record interest expense) (To record amortization of the right-of-use asset)

Answer 1

Answer: * Journal Entries: Date Account Title & Explanation. Debit (6) credited) Right to use $33,814 Jan $33,894 Lcasc liability fro record dease liability Elcordasset) Lease liability $532200 | Jani cash $5,200 To record payment on leave hoblity) interest Expense $2,296 IDec 31 Lease liability $2,496 Amortization Expence (33,894105943, 38 Dec 3) ight to we $3,389 Go record amortization expense)

2 buroking, Annual lecce vent = $5,200 bargain perchase option = $3,000 incremental borrowing mata = 94 number of years = 8 present value of annual dear rent = pv (84., - 5200,0,01) 8 years, **32,273 (from financial online cd calator Present valere of borgin purchase = pv (84-, syans, 03-300, 0). = $1,621 liability to be recorded =$32,273+1,621 = $33,894 interest Expense for 2000 33,894-5,200)*81. = $2,296 Grounded) Lease Now,