On January 1, 2020, Sandhill Company leased equipment to Flynn Corporation. The following information pertains to...
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On January 1, 2020, Sandhill Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. Equal rental payments are due on January 1 of each year, beginning in 2020. The fair value of the equipment on January 1, 2020, is $165,000, and its cost is $120,000. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. Sandhill set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare all the necessary journal entries for Flynn for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date 1/1/20 1/1/20 12/31/20 Account Titles and Explanation Right-of-Use Asset Lease Liability (To record the lease) Lease Liability Cash (To record the lease payment) Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) Debit Credit 12/31/20 Right-of-Use Asset (To record amortization of the right-of-use asset) Interest Expense List of Accounts Lease Liability (To record interest expense) eTextbook and Media Prepare the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2,000 are incurred by Flynn to negotiate the lease. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) On January 1, 2020, Sandhill Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. Equal rental payments are due on January 1 of each year, beginning in 2020. The fair value of the equipment on January 1, 2020, is $165,000, and its cost is $120,000. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. Sandhill set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare all the necessary journal entries for Flynn for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date 1/1/20 1/1/20 12/31/20 Account Titles and Explanation Right-of-Use Asset Lease Liability (To record the lease) Lease Liability Cash (To record the lease payment) Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) Debit Credit 12/31/20 Right-of-Use Asset (To record amortization of the right-of-use asset) Interest Expense List of Accounts Lease Liability (To record interest expense) eTextbook and Media Prepare the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2,000 are incurred by Flynn to negotiate the lease. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
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Related Book For
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
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