Question

LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Cavaliers, Inc. for 3 years. The lease calls for annual lease payments of $23,000 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 6%.

BE21.15

Account Titles

Debit

Credit

01/01/20

cash

23000

lease liability

23000

LEBRON JAMES CORPORATION

Schedule A - Lease Amortization Schedule

Annuity-Due Basis

Interest

Reduction

Annual

(6%) on

of Lease

Lease

Date

Payment

Liability

Liability

Liability

1/1/20

1/1/20

1/1/21

1/1/22

Answer 1

Annual lease payment Annuity factor,( 6%, 3years) Lease liability 23,000 2.83339 65,168 PV Factor @6% yeari 1.00000 year2 0.94340 year3 0.89000 annuity 2.83339 $ Date Account title and explanation Dehit Credit 65,168 01/01/2020 right-to-use asset lease liability (To record lease liability) 65,168 01/01/2020 23,000 lease liability Cash (To record lease payment) 23,000 31/12/2020 23,000 lease expense right-to-use asset ( 65168-23000) x 6% lease liability (To record lease expense) 2,530 20,470

lebron james corporation (LESSEE) Lease amortization schedule Annual due basis Annual reduction of lease Interest on Lease Date Payment liability(6%) liability liability B C =Ex 6% D=B-C E = E-D 01/01/2020 $65,168.03 01/01/2020 $ 23,000.00 $ - $ 23,000.00 $42,168.03 01/01/2021 $23,000.00 $ 2,530.08 $ 20,469.92 $ 21,698.11 01/01/2022 $ 23,000.00 $ 1,301.89 $ 21,698.11 $ You can round the amount if it is required Please comment if you have any doubt Please give thumps up if you are satisfied with the answer