Jones Company leases equipment to Cage Inc. on January $1,2017.$ The following information details the lease contract:

a$.$ The lease term is seven years with no renewal or purchase options.

b$.$ The machinery cost Jones $$525,000$ to construct and has a fair value of $$700,000$ at the lease inception.

c$.$ The asset reverts to Jones at the end of the lease. Jones estimates the residual value of the asset to be $$50,000.$

d$.$ Cage has guaranteed the residual value of the asset will be $$40,000.$ Due to hard expected usage of the asset, Cage anticipates the actual residual value to only be $$30,000$ at the end of the lease.

e$.$ The assets estimated economic life is nine years with a salvage value of $$3,000.$

f$.$ The lease calls for equal payments to be made at the beginning of each year starting January $1,2017.$

g$.$ Both firms have December $31$ fiscal year ends and use straight$-$line depreciation.

h$.$ Jones has priced a $5\%$ implicit rate into the lease. Cages incremental borrowing rate is $6\%$ and it does not know the implicit rate of the lease.

i$.$ Collectability of lease payments is probable.

 

 

Required:

$1.$ Calculate the annual payments Jones will require for the lease.

$2.$ What type of lease is this for both Jones and Cage?

$3.$ Prepare the lessors $($Jones$)$ amortization table and show all the journal entries Jones will make for the lease in $2017$ and $2018.$

$4.$ Prepare the lessees $($Cages$)$ amortization table and show all the journal entries Cage will make for the lease in $2017$ and $2018.$

$5.$ Make the December $31,2023$ lease termination entries both Jones and Cage will have to make if the assets residual value is $$60,000$ at the end of the lease.

$6.$ Make the December $31,2023$ lease termination entries both Jones and Cage will have to make if the assets residual value is $$20,000$ at the end of the lease.

Answer rating: 100% (QA)

To prepare the statement of activities for INVOLVE for the year ended December 31 2023 we need to su... View the full answer