4 6 1 Problem 4. Following are the terms of a lease entered into on January 20, 2020. [LC, IDC) 2 FMV of asset at inception of lease $500,000.00 3 Estimated residual value of asset at lease termination $80,000.00 Portion of residual value guaranteed by Lessee S50,000.00 5 Lessor's amortized cost of asset at inception of lease $500,000.00 Duration of lease 2 yrs 7 Lease payment amount $230,458.00 8 Frequency of payments annually 9 First payment due at inception of lease? Yes 10 Purchase option that Lessee is reasonably certain to exercise? No 11 Title transfers to Lessee at any time during or at end of lease? No 12 Lessor's implicit rate 12% 13 Lessee's incremental borrowing rate 12% 14 Does Lessee know Lessor's implicit rate? yes 15 Remaining economic life of asset 5 yrs 16 Economic life of asset when new 5 yrs 17 Specialized use asset with no alternative use to Lessor at end of lease? no 18 Nonlease components included in lease payment? no 19 Initial direct costs incurred by Lessor (assume recorded by Lessor in Misc. 20 Expenses when incurred) $10,000 21 Initial direct costs incurred by Lessee (assume recorded by Lessor in Misc. 22 Expenses when incurred) $12,000 23 Required 24 25 1. Prepare Lessor's and Lessee's entry to record the lease on January 20, 2020. Assume that the initial 26 direct costs incurred by cach were incurred on January 5, 2020 and were recorded in Miscellaneous Expenses on that date. 27 28 29 29 30 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box 31 32 Entries by Lessee at inception of lease on 1/20/2020: 33 Account Debit Credit 34 1 35 1 36 1 37 1 38 1 39 1 40 42 Entries by Lessor at inception of lease on 1/20/2020: Account Debit Credit 2 2 2 45 46 47 48 2 2 2 49 En 52 2. Redo Lessor's entry to book the lease on January 20, 2020 assuming that the Lessor's amortized cost of 53 the asset is $400,000 54 55 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box 56 57 Entries by Lessor at inception of lease on 1/20/2020: 58 Account Debit Credit 59 3 60 3 61 3 62 3 63 3 64 3 65 66 A1 4 x fx Column1 D E UL F G H C B A 1 Columni 2 Accumulated epreciation (Bal. Sht) 3 Cash (Bal. Sht 4 Deferred rent revenue (Bal. Sht) 5 Equipment (B. I. Sht) 6 Lease payable (Bal. Sht) 7 Lease receivaille (Bal. Sht) 8 Note payable Bal. Sht) 9 Prepaid service contract (Bal. Sht) 10 Right-of-Use asset (Bal. Sht) 11 Warehouse (ehl. Sht) 12 Amortization xpense (Inc. Stmt) 13 Cost of goods sold (Inc. Stmt) 14 Gain on sale of warehouse (Inc. Stmt) 15 Interest experse (Inc. Stmt) 16 Interest revenue (Inc. Stmt) 17 Lease expense (Inc. Stmt) 18 Lease revenue (Inc. Stmt) 19 Misc. expenses (Inc. Stmt) 20 Rent revenue Inc. Stmt) 21 Sales revenue Inc. Stmt) 22 23 24 25 26 27 28 29 30 31 9 4 6 1 Problem 4. Following are the terms of a lease entered into on January 20, 2020. [LC, IDC) 2 FMV of asset at inception of lease $500,000.00 3 Estimated residual value of asset at lease termination $80,000.00 Portion of residual value guaranteed by Lessee S50,000.00 5 Lessor's amortized cost of asset at inception of lease $500,000.00 Duration of lease 2 yrs 7 Lease payment amount $230,458.00 8 Frequency of payments annually 9 First payment due at inception of lease? Yes 10 Purchase option that Lessee is reasonably certain to exercise? No 11 Title transfers to Lessee at any time during or at end of lease? No 12 Lessor's implicit rate 12% 13 Lessee's incremental borrowing rate 12% 14 Does Lessee know Lessor's implicit rate? yes 15 Remaining economic life of asset 5 yrs 16 Economic life of asset when new 5 yrs 17 Specialized use asset with no alternative use to Lessor at end of lease? no 18 Nonlease components included in lease payment? no 19 Initial direct costs incurred by Lessor (assume recorded by Lessor in Misc. 20 Expenses when incurred) $10,000 21 Initial direct costs incurred by Lessee (assume recorded by Lessor in Misc. 22 Expenses when incurred) $12,000 23 Required 24 25 1. Prepare Lessor's and Lessee's entry to record the lease on January 20, 2020. Assume that the initial 26 direct costs incurred by cach were incurred on January 5, 2020 and were recorded in Miscellaneous Expenses on that date. 27 28 29 29 30 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box 31 32 Entries by Lessee at inception of lease on 1/20/2020: 33 Account Debit Credit 34 1 35 1 36 1 37 1 38 1 39 1 40 42 Entries by Lessor at inception of lease on 1/20/2020: Account Debit Credit 2 2 2 45 46 47 48 2 2 2 49 En 52 2. Redo Lessor's entry to book the lease on January 20, 2020 assuming that the Lessor's amortized cost of 53 the asset is $400,000 54 55 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box 56 57 Entries by Lessor at inception of lease on 1/20/2020: 58 Account Debit Credit 59 3 60 3 61 3 62 3 63 3 64 3 65 66 A1 4 x fx Column1 D E UL F G H C B A 1 Columni 2 Accumulated epreciation (Bal. Sht) 3 Cash (Bal. Sht 4 Deferred rent revenue (Bal. Sht) 5 Equipment (B. I. Sht) 6 Lease payable (Bal. Sht) 7 Lease receivaille (Bal. Sht) 8 Note payable Bal. Sht) 9 Prepaid service contract (Bal. Sht) 10 Right-of-Use asset (Bal. Sht) 11 Warehouse (ehl. Sht) 12 Amortization xpense (Inc. Stmt) 13 Cost of goods sold (Inc. Stmt) 14 Gain on sale of warehouse (Inc. Stmt) 15 Interest experse (Inc. Stmt) 16 Interest revenue (Inc. Stmt) 17 Lease expense (Inc. Stmt) 18 Lease revenue (Inc. Stmt) 19 Misc. expenses (Inc. Stmt) 20 Rent revenue Inc. Stmt) 21 Sales revenue Inc. Stmt) 22 23 24 25 26 27 28 29 30 31 9