On January 1, Year 1, Goat CO, leased a machine from Ursula Co for a 4 year
Question:
On January 1, Year 1, Goat CO, leased a machine from Ursula Co for a 4 year period ending December 31, 2024. - The equipment cost Ursula CO $956,000 and has an expected useful life of 5 years. - Ursula CO expects the residual value at the end of the lease term to be $300,000. - Negotiations led to the lessee guaranteeing a $340,000 residual value. - The agreement calls for 4 payments of $200,000 each, payable on December 31 each year. - Goat CO is aware that Ursula Co used a 5% interest rate when calculating lease payments. Required
a) Calculate the present value of the periodic lease payments and any other relevant cash flows.
b) Determine how the lease agreement would be classified by the lessor and the lessee.
c) Prepare the journal entries for the lessee from the beginning of the lease through the end of the lease agreement.
d) Prepare the journal entries for the lessor from the beginning of the lease through the end of the lease agreement.
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson