Lease lT (lessor) Company entered into a Truck lease with Use it Company on January 1, 2022.
Question:
Lease lT (lessor) Company entered into a Truck lease with Use it Company on January 1, 2022. Annual lease payments of $7,000 are payable at the beginning of each year, starting on
January 1, 2022. The following information relates to this noncancelable lease:
Lease term (years) 6
Lessor's implicit interest rate 12%
Lessee's incremental borrowing rate14%
Fair value of lease asset $34,54837
Lessor's cost of lease asset $33,819
Estimated fair value $5,000
Guaranteed by lessee 0
The present value of an annuity due of $1 for 6 years at 12% is 4.60478 and at 14% is 4.43308. The present value of $1 for 6 years at 12% is .50663 and at 14% is .45559. Both the implicit interest rate and incremental borrowing rate are known by all parties. Both parties use straight line for any depreciation. The lease is correctly classified as a sales type lease for the lessor and a finance lease for the lessee. Write the journal entries on January 1, 2022 for the lessor or the lessee books.
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones