Blossom Corporation, which uses ASPE, leased equipment it had specifically purchased at a cost of $175,200 for
Question:
Blossom Corporation, which uses ASPE, leased equipment it had specifically purchased at a cost of $175,200 for Crane, the lessee. The term of the lease is 6 years, beginning January 1, 2020, with equal rental payments of $35,831 at the beginning of each year. Crane pays all executory costs directly to third parties. The equipment's fair value at the lease's inception is $175,200. The equipment has a useful life of 7 years with no residual value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility is reasonably assured, with no additional costs to be incurred by Blossom.
Using tables, a financial calculator, or Excel functions, calculate the present value of the lease payments and prepare Crane Corporation’s January 1, 2017 journal entries at the inception of the lease.
Accounting
ISBN: 978-0324401844
22nd Edition
Authors: Carl S. Warren, James M. Reeve, Jonathan E. Duchac