In January 1, 2018, Hester Co. sells machinery to Beck Corp. at its fair value of $960,000 and leases it back. The machinery had a carrying value of $840,000, the lease is for 10 years and the implicit rate is 10%. The lease payments of $142,000 starting on January 1, 2018. Hester uses straight-line depreciation and there is no residual value.
Hesters Co journal entry is presented below
Hester Co. (Lessee) January 1, 2018
Cash A/C Dr 960,000
To Equipment 840,000
To Unearned Profit on Sale-Leaseback 120,000
Leased Equipment A/C Dr 960,000
To Lease Liability 960,000
Lease Liability A/C Dr 142,000
To Cash 142,000
December 31, 2018
Depreciation Expense A/C Dr 96,000
To Accumulated Depreciation—Leased Equipment 96,000
Unearned Profit on Sale-Leaseback A/C Dr 12,000
To Depreciation Expense 12,000
Interest Expense A/C Dr [10% × ($960,000 – $142,000)] 81,800
To Interest Payable 81,800
Instructions Prepare all of Becks entries for 2018.
In January 1, 2018, Hester Co. sells machinery to Beck Corp. at its fair value of...
On January 1, 2017, Sheffield Company contracts to lease equipment for 5 years, agreeing to make a payment of $109,913 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $466,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Sheffield’s incremental borrowing rate is 6%, and the implicit rate in the lease is 9%, which is known by Sheffield....
Please help with finding the right account titles! Brief Exercise 21A-7 Your answer is partially correct. Try again. Windsor Corporation recorded a right-of-use asset for S240 300 as a result of a finance lease on December 31, 2016. Windsor's incremental borrowing rate is 13%, and the implicit rate of the lessor was not known at the commencement of the lease. Windsor made the first lease payment of $41,440 on on December 31, 2016. The lease requires 9 annual payments. The...
Accounts 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...
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Accounts 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...
Cullumber Co. leased machinery from Young, Inc. on January 1, 2017. The lease term was for 8 years, with equal annual rental payments of $5,500 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 Cullumber is reasonably certain it will exercise as it believes the fair value of the machinery will be at least $6,000. The machinery has a useful life of...
Assume that on January 1, 2017, Elmer’s Restaurants sells a computer system to Liquidity Finance Co. for $683,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer’s books at a value of $600,000. 2. The term of the noncancelable lease is 10 years; title will transfer to Elmer. 3. The lease agreement requires equal rental payments of $111,155 at the end of each year. 4. The incremental borrowing rate...
David Corp. sold machinery for $80,000 on December 31, 2018. This machinery was purchased on January 2, 2014, for $68,000 and had an adjusted basis of $40,000 at the date of sale. The machinery was used in David Corp. business. For 2018 David Corp. should report: a. Ordinary Income of $12,000 and capital gain of $28,000 b. Ordinary Income of $28,000 and capital gain of $12,000 c. Ordinary Income of $40,000 d. Capital gain of $40,000
Assume that on January 1, 2017, Elmer’s Restaurants sells a computer system to Liquidity Finance Co. for $733,000 and immediately leases the computer system back. The relevant information is as follows. 1. The computer was carried on Elmer’s books at a value of $657,000. 2. The term of the noncancelable lease is 10 years; title will transfer to Elmer. 3. The lease agreement requires equal rental payments of $119,292 at the end of each year. 4. The incremental borrowing rate...
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