Hornstein Finance Co. (lessor) leased an asset on January 1, 2019, to HPQ Fishing (lessee). The lease
Question:
Hornstein Finance Co. (lessor) leased an asset on January 1, 2019, to HPQ Fishing (lessee). The lease agreement calls for eight annual lease payments of $60,000 beginning on the commencement date. The interest rate implicit in the lease is 7%; however, HPQ cannot readily determine this. HPQ’s incremental borrowing rate is 6%. The asset has an estimated value of $30,000 at the end of the lease; however, this is not guaranteed. HPQ must return the asset to the lessor at the end of the lease. The leased equipment has an estimated useful life of 10 years and no residual value at that time. HPQ paid its lawyers $4,000 to review the lease agreement. HPQ uses the straight-line method to depreciate similar equipment that it owns and has a December 31 year-end.
Prepare HPQ Fishing’s journal entries for January 1, 2019. Enter a debit as positive, a credit as negative. For any accounts that are not applicable, enter a 0.
Accumulated Depreciation =
accum - Numeric Answer
Cash =
cash - Numeric Answer
Depreciation Expense =
depr - Numeric Answer
Interest Expense =
intexp - Numeric Answer
Lease Liability =
lease - Numeric Answer
ROU Asset =
rou - Numeric Answer
Financial Reporting and Analysis
ISBN: 978-1259722653
7th edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer