Pharoah Corporation (Pharoah) manufactures equipment with an estimated economic life of 14 years. On May 30,...
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Pharoah Corporation ("Pharoah") manufactures equipment with an estimated economic life of 14 years. On May 30, 2023, Pharoah leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: . Equipment has a fair value and cost at the inception of the lease: $188,219. Guaranteed residual value: $28,000. Annual lease payment, due at beginning of each year: $26,250. Lease contains no renewal options and the equipment reverts to Pharoah at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 10%. Gadget uses straight-line depreciation for similar equipment that it owns. Pharoah has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both companies follow ASPE. Prepare the journal entries for the lessee and lessor at May 30, 2023, the inception of the lease, and at December 31, 2023, which is the year end for both the lessee and lessor. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Lessee: Date Account Titles and Explanation (To record lease payment) (To record interest) (To record depreciation expense) Debit Credit Pharoah Corporation ("Pharoah") manufactures equipment with an estimated economic life of 14 years. On May 30, 2023, Pharoah leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: . Equipment has a fair value and cost at the inception of the lease: $188,219. Guaranteed residual value: $28,000. Annual lease payment, due at beginning of each year: $26,250. Lease contains no renewal options and the equipment reverts to Pharoah at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 10%. Gadget uses straight-line depreciation for similar equipment that it owns. Pharoah has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both companies follow ASPE. Prepare the journal entries for the lessee and lessor at May 30, 2023, the inception of the lease, and at December 31, 2023, which is the year end for both the lessee and lessor. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Lessee: Date Account Titles and Explanation (To record lease payment) (To record interest) (To record depreciation expense) Debit Credit
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