Gail Inc. leased new office furniture for two years on January 1, 2019, with the following details:
Question:
Gail Inc. leased new office furniture for two years on January 1, 2019, with the following details:
■ Payments: $2,000 per annum first due at the commencement date.
■ Interest rate implicit in the lease: 5%; however, lessee is not able to readily determine this.
■ Incremental borrowing rate: 4% per annum.
■ Estimated useful life of equipment: 5 years.
■ Other: Title does not transfer. The leased item is not dependent upon or highly interrelated with other assets.
■ Depreciation method: Straight-line.
■ Year end: December 31.
Required:
a. Assume that Gail Inc. elects to expense leases of low-value assets. Prepare the journal entries for 2019 and January 1, 2020.
b. Assume that Gail Inc. does not elect to expense leases of low-value assets. Prepare the journal entries for 2019 and January 1, 2020.
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