Tartufo Corp. entered into a 5-year lease agreement with Gelato Inc. to lease equipment beginning on January
Question:
Tartufo Corp. entered into a 5-year lease agreement with Gelato Inc. to lease equipment beginning on January 1, 20X5. The IBR is 9% while the rate implicit in the lease is 8%. Tartufo Corp. is aware of the rate implicit in the lease.
Annual payments of $61,500 at the beginning of the year are required. The lease stipulates a $50,000 residual value guarantee but Tartufo Corp. expects a $10,000 payout will be required.
Tartufo Corp. will return the equipment to Gelato Inc. at the end of the lease term.
Required:
Provide journal entries pertaining to this lease for Tartufo Corp. for the 20X5 year. Tartufo Corp. uses straight-line depreciation for similar assets, with a half-year of deprecation recorded in the year of acquisition.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel