ACC $302-$ Lessee Finance Lease $-$ Transfer of Ownership

A lessor and lessee enter into a lease agreement whereby an $18$ wheeler with a fair value of $$130,000$ and a useful life of five years will be leased for a period of four years. The lease payments will be made at the beginning of each year. The residual value at the end of the lease term is expected to be $$20,000.$ The residual value at the end of the asset's useful life is expected to be $$15,000.$ The lessor requires a rate of return of $12\%$ on his net investment. The lessee can borrow to purchase the truck at a $10\%$ interest rate. Title to the truck will pass to the lessee at the end of the lease term. The lessee does not know the lessor's implicit interest rate.

For the lessee,

The capitalized value of the lease is

The beginning carrying value of the liability is

The interest rate to calculate interest is

Make the journal entries for the first year of the lease term.

LEASED TRUCK

CASH

LEASE LIABILITY

INTEREST EXPENSE

INTEREST PAYABLE

AMORTIZATION EXPENSE

ACCUM AMORTIZATION

Make all lessee journal entries for the rest of the lease term.

$ $q,$

$

$$ACC $302-$ Lessee Finance Lease $-$ Transfer of Ownership

A lessor and lessee enter into a lease agreement whereby an $18$ wheeler with a fair value of $$130,000$ and a useful life of five years will be leased for a period of four years. The lease payments will be made at the beginning of each year. The residual value at the end of the lease term is expected to be $$20,000.$ The residual value at the end of the asset's useful life is expected to be $$15,000.$ The lessor requires a rate of return of $12\%$ on his net investment. The lessee can borrow to purchase the truck at a $10\%$ interest rate. Title to the truck will pass to the lessee at the end of the lease term. The lessee does not know the lessor's implicit interest rate.

For the lessee,

The capitalized value of the lease is

The beginning carrying value of the liability is

The interest rate to calculate interest is

Make the journal entries for the first year of the lease term.

LEASED TRUCK

CASH

LEASE LIABILITY

INTEREST EXPENSE

INTEREST PAYABLE

AMORTIZATION EXPENSE

ACCUM AMORTIZATION

Make all lessee journal entries for the rest of the lease term.

$ $q,$

$

$$