Problem 5 (20%) Reagan Company is an auto body shop. On Jan. 1, 2015, the company...

  

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Problem 5 (20%) Reagan Company is an auto body shop. On Jan. 1, 2015, the company signed a contract to lease an auto paint shop from Baker Company. The lease was for 6 years, commencing immediately on January 1, 2015. The annual lease payment was $109,000, including $2,000 for maintenance and repair, to be made at the beginning of each year. Under the agreement, Reagan (lessee) guaranteed that the leased equipment would be worth at least $28,000 when returned to Baker at the end of the lease. Reagan expected the equipment to have a useful life of 8 years and a residual value of $18,000. Baker's (lessor) rate of return on the lease was 8%, and this was known to Reagan the lessee. Reagan Company had a Dec. 31 year end and followed IFRS. Required: (1) Prepare each journal entry Reagan the lessee was required to make on Jan. 1, 2015. (2) Prepare an amortization table for Reagan the lessee (must show work using present values from the attached tables.) (2) Prepare each journal entry Reagan the lessee was required to make in 2015 after Jan. 1. (3) Prepare each journal entry Reagan the lessee was required to make in 2020. When the auto paint shop was returned to Baker at the end of the lease, it was found to be worth $21,000. Problem 5 (20%) Reagan Company is an auto body shop. On Jan. 1, 2015, the company signed a contract to lease an auto paint shop from Baker Company. The lease was for 6 years, commencing immediately on January 1, 2015. The annual lease payment was $109,000, including $2,000 for maintenance and repair, to be made at the beginning of each year. Under the agreement, Reagan (lessee) guaranteed that the leased equipment would be worth at least $28,000 when returned to Baker at the end of the lease. Reagan expected the equipment to have a useful life of 8 years and a residual value of $18,000. Baker's (lessor) rate of return on the lease was 8%, and this was known to Reagan the lessee. Reagan Company had a Dec. 31 year end and followed IFRS. Required: (1) Prepare each journal entry Reagan the lessee was required to make on Jan. 1, 2015. (2) Prepare an amortization table for Reagan the lessee (must show work using present values from the attached tables.) (2) Prepare each journal entry Reagan the lessee was required to make in 2015 after Jan. 1. (3) Prepare each journal entry Reagan the lessee was required to make in 2020. When the auto paint shop was returned to Baker at the end of the lease, it was found to be worth $21,000.

Answer rating: 100% (QA)

A 1 DATE PARTICULARS 2 3 Jan01 AUTO PAINT SHOP AC DR 4 2015 TO LEAS... View the full answer