Sunland Incorporated leases a piece of machinery to Marigold Company on January 1, 2020, under the following terms.

1.		The lease is to be for 4 years with rental payments of $12,209 to be made at the beginning of each year.
2.		The machinery’ has a fair value of $64,752, a book value of $48,320, and an economic life of 10 years.
3.		At the end of the lease term, both parties expect the machinery to have a residual value of $24,160. To protect against a large loss, Sunland requests Marigold to guarantee $16,870 of the residual value, which Irving agrees to do.
4.		The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature.
5.		The implicit rate is 5%, which is known by Marigold.
6.		Collectibility of the payments is probable

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Evaluate the criteria for classification of the lease, and describe the nature of the lease.

For the lessee, it is a sales-type lease operating lease finance lease, and for the lessor, it is a sales-type lease operating lease finance lease.

Prepare the journal entries for Marigold for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease)
Jan. 1
	(To records first lease payment)
Dec. 31
	(To record accrued interest)
Dec. 31
	(To record amortization expense)

Prepare the journal entries for Sunland for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease)
Jan. 1
	(To record first lease payment)
Dec. 31
	(To record lease revenue)

Evaluate the criteria for classification of the lease, and describe the nature of the lease, assuming that Marigold did not guarantee any amount of the expected residual value.

For the lessee, it is a finance lease operating lease sales-type lease, and for the lessor, it is a finance lease sales-type lease operating lease.

Suppose Marigold did not guarantee any amount of the expected residual value. Prepare the journal entries for Marigold for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease)
Jan. 1
	(To record first lease payment)
Dec. 31
	(To record interest and amortization)

Suppose Marigold did not guarantee any amount of the expected residual value. Prepare the journal entries for Sunland for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease payments)
Dec. 31
	(To record lease revenue)
Dec. 31
	(To record depreciation)

Answer rating: 100% (QA)

Solution As per IAS 17 Leases the classification of Lease can be based on the following arguments a Lease period is less than the economic life of the ... View the full answer