Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured the equipment at...
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Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured the equipment at a cost of $200,000. The equipment has a fair value of $260,000. Information related to the lease appears below: Lease term First lease payment Subsequent lease payments Economic life of the equipment Estimated value of equipment at end of economic life Purchase option, reasonably expected to be exercised by Oscar Implicit and incremental borrowing rate 8% 5 years January 1, 2023 December 31, 2023, 2024, 2025, 2026 6 years $0 $20,000 Required: 1. Determine the amount of the annual payments using Time Value of Money Tables. Show computations. 2. Apply the lease classification criteria to this lease. From the lease criteria, determine the lease categorization for Oscar, the lessee and Reynolds, the lessor. 3. Prepare the entries to record the lease and the first payment for both the lessee and the lessor on January 1, 2023. 4. Prepare an amortization table for the lessee and the lessor for the term of the lease. 5. Prepare all required journal entries for Oscar and Reynolds on December 31, 2023. 6. Prepare all required journal entries for Oscar and Reynolds on December 31, 2027, the end of the lease term. Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured the equipment at a cost of $200,000. The equipment has a fair value of $260,000. Information related to the lease appears below: Lease term First lease payment Subsequent lease payments Economic life of the equipment Estimated value of equipment at end of economic life Purchase option, reasonably expected to be exercised by Oscar Implicit and incremental borrowing rate 8% 5 years January 1, 2023 December 31, 2023, 2024, 2025, 2026 6 years $0 $20,000 Required: 1. Determine the amount of the annual payments using Time Value of Money Tables. Show computations. 2. Apply the lease classification criteria to this lease. From the lease criteria, determine the lease categorization for Oscar, the lessee and Reynolds, the lessor. 3. Prepare the entries to record the lease and the first payment for both the lessee and the lessor on January 1, 2023. 4. Prepare an amortization table for the lessee and the lessor for the term of the lease. 5. Prepare all required journal entries for Oscar and Reynolds on December 31, 2023. 6. Prepare all required journal entries for Oscar and Reynolds on December 31, 2027, the end of the lease term.
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1 To calculate the amount of the annual payments you can use the present value formula In this case you have an annuity due since the first payment oc... View the full answer
Related Book For
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Posted Date:
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