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Cappy Ltd. leased equipment to Swen Company on July 1,

Cappy Ltd. leased equipment to Swen Company on July 1, 2019. The terms of the lease are:

Question:

Swen uses straight-line depreciation for its property, plant, and equipment, and its year end is December 31.

Required:

a. Prepare Swen’s journal entries for the lease for 2019.

b. You are the director of finance for Swen Company. You are concerned about the impact the lease will have on your key performance indicator, which is the ratio of total debt to total assets. Discuss the impact the lease will have on this performance indicator.

Transcribed Image Text:

Lease term Economic life of equipment Fair market value of equipment Guaranteed residual value Expected payout under guaranteed residual Expected residual at end of economic life Annual lease payment, due each July 1 Lessee's incremental borrowing rate (implicit rate unknown) 8 years 10 years $120,000 $15,000 $0 $0 $16,000 6%

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a On July 1 2019 Swen would make the following journal entry to record the lease D...View the full answer

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Intermediate Accounting Volume 2

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4th Edition

Authors: Kin Lo, George Fisher

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Question Posted: Nov 02, 2022 02:10 AM

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Cappy Ltd. leased equipment to Swen Company on July 1, 2019. The terms of the lease are:

Question:

Step by Step Answer:

a On July 1 2019 Swen would make the following journal entry to record the lease D...View the full answer

Intermediate Accounting Volume 2

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