Markus Computer Company manufactures and sells or leases various types of computer equipment. On 1/1/20, Markus leased
Question:
Markus Computer Company manufactures and sells or leases various types of computer equipment. On 1/1/20, Markus leased a complete computer system to Bellis Enterprises. Data relating to the lease follow:
Cost of equipment to Markus.................................................................... $72,000
Fair market value of equipment at 1/1/20............................................... $95,000
Useful life of equipment 8 years
Lease term 5 years
Residual value at the end of the lease (guaranteed by Bellis)............... $12,000
Residual value expected by Bellis ................................................................ $9,000
Implicit and incremental interest rates............................................................... 8%
Initial direct costs incurred by Bellis in negotiation..................................... $2,000
Both the lessor and lessee use straight-line depreciation and have accounting periods that end on 12/31.
Required:
a. Calculate the yearly payment that Markus will charge Bellis under this lease agreement if payments are made on 1/1 of each year, beginning 1/1/20.
b. Prepare all journal entries that would be made by Markus (lessor) during 2020 and 2021 relating to this lease.
c. Prepare all journal entries that would be made by Bellis (lessee) during 2020 and 2021 relating to this lease.
d. Prepare the journal entries made by both Markus and Bellis with respect to the lease termination if the actual residual value of the computer equipment is $10,000.
Managerial Accounting An Introduction to Concepts Methods and Uses
ISBN: 978-0324639766
10th Edition
Authors: Michael W. Maher, Clyde P. Stickney, Roman L. Weil