1 2. 3. Vaughn Leasing Company agrees to lease equipment to Bramble Corporation on January 1, 2020. The following information relates to the lease agreement The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000 At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Bramble estimates that the expected residual value at the end of the lease term will be 60,000, Bramble amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is probable. Vaughn desires a 9% rate of return on its investments, Bramble's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown 4. 5. 6. (Assume the accounting period ends on December 31.) Discuss the nature of this lease for both the lessee and the lessor This is a finance lease for Bramble This is a sales-type lease for Vaughn e Textbook and Media List of Accounts Attempts: unlimited (b) Your answer is correct. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to decimal places eg. 58,972.) Annual rental payment $ $ 121434 Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places eg. 58,972.) Present value of minimum lease payments 650311 Prepare the journal entries Bramble would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round answers to O decimal places eg. 58,972. Record journal entries in the order presented in the problem.) Date Debit Credit Account Titles and Explanation Right-of-Use Asset 1/1/20 650311 65031 Lease Liability (To record the lease.) Lease Liability 121434 Cash 12143 (To record lease payment.) Amortization Expense 12/31/20 Right-of-Use Asset (To record amortization.) Interest Expense Lease Liability (To record interest.) Lease Liability 1/1/21 121434 Cash 12143 12/31/21 Amortization Expense (To record the lease.) Lease Liability 121434 Cash 121434 (To record lease payment.) Amortization Expense 2/31/20 Right-of-Use Asset (To record amortization.) Interest Expense Lease Liability (To record interest.) Lease Liability 1/21 121434 Cash 121434 2/31/21 Amortization Expense Right-of-Use Asset (To record amortization.) Interest Expense Lease Liability (To record interest.)
