Question
Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January
Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:
1. | The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $20,000 to be paid in advance at the beginning of each year. |
2. | The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is $68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. |
3. | Adden agrees to pay all executory costs directly to a third party. |
4. | The lease contains no renewal or bargain purchase options. |
5. | Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. |
6. | Adden uses the straight-line method to record depreciation on similar equipment. |
7. | Executory costs paid at the end of the year by Adden are: |
2019 | 2020 |
Insurance, $1,500 | Insurance, $1,300 |
Property taxes, $5,500 | Property taxes, $6,000 |
Required:
2. Prepare a table summarizing the lease payments and interest expense for Adden.
Additional Instructions
Question not attempted.
Score: 0/21
Adden Company |
Summary of Lease Payments and Interest Expense |
1 | Date | Annual Lease Payment | Interest at 12% on Unpaid Liability | Balance of Lease Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 | January 1, 2019 : Before the initial payment |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3 | January 1, 2019 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4 | December 31, 2019 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5 | January 1, 2020 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6 | December 31, 2020 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7 | January 1, 2021 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8 | December 31, 2021 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9 | January 1, 2022 |
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepare journal entries for Adden for the year 2019. General Journal Instructions Question not attempted. PAGE 1 GENERAL JOURNAL Score: 0/138
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started