Marshall Corporation leases equipment from Universal Leasing Company with the following terms: Lease period: 5 years, beginning
Question:
Marshall Corporation leases equipment from Universal Leasing Company with the following terms:
Lease period: 5 years, beginning January 1, 2021. Non-cancellable.
Rental Amount: $60,000 per year payable annually on the Jan. 1 of each year, starting Jan. 1, 2021.
Estimated economic life of the equipment: 6 years.
Expected residual value of the equipment at the end of the lease: $5,000 (un-guaranteed).
Marshall’s incremental borrowing rate: 10%.
Universal’s implicit interest rate: 8% (unknown by Marshall)
Fair value of equipment at 1/1/2021: $255,000.
Instructions:
1) Determine how Marshall should classify this lease.
1) Prepare the journal entries for Marshall for 2021 and 2022.
2) Prepare the amortization table for the first two years of the lease.
Intermediate Accounting
ISBN: 978-0078025839
9th edition
Authors: J. David Spiceland, James Sepe , Mark Nelson , Wayne Thomas