Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020 The following information relates to the lease agreement 1 The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years 2 The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2020, is $737,000 3 At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000 Blue estimates that the expected residual value at the end of the lease term will be 60,000 Blue amortizes all of its leased equipment on a straight line basis 4 The lease agreement requires equal annual rental payments, beginning on January 1, 2020 5 The collectibility of the lease payments is probable 6 Blossom desires a 10 rate of return on its investments Blues incremental borrowing rate is 11 , and the lessors implicit rate is unknown (Assume the accounting period ends on December 31 ) Prepare the journal entries Blue 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 0 decimal places e g 58,972 Record journal entries in the order presented in the problem ) Date Account Titles and Explanation Debit Credit 1 1 20 Lease Liability (To record the lease ) Lease Liability Cash (To record lease payment ) 12 31 20 Amortization Expense (To record amortization ) Interest Expense (To record interest ) 1 1 21 Lease Liability Cash 12 31 21 Amortization Expense Right of Use Asset (To record amortization ) Interest Expense (To record interest )

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Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term

Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2020, is $737,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Blue estimates that the expected residual value at the end of the lease term will be 60,000. Blue amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Blossom desires a 10% rate of return on its investments. Blues incremental borrowing rate is 11%, and the lessors implicit rate is unknown.

(Assume the accounting period ends on December 31.) image text in transcribed

Prepare the journal entries Blue 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 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20 Lease Liability (To record the lease.) Lease Liability Cash (To record lease payment.) 12/31/20 Amortization Expense (To record amortization.) Interest Expense (To record interest.) 1/1/21 Lease Liability Cash 12/31/21 Amortization Expense Right-of-Use Asset (To record amortization.) Interest Expense (To record interest.)