Question
Carla Corporation (Carla) manufactures equipment with an estimated economic life of 13 years. On May 30, 2020, Carla leases it to Gadget Corporation (Gadget) for
Carla Corporation (Carla) manufactures equipment with an estimated economic life of 13 years. On May 30, 2020, Carla leases it to Gadget Corporation (Gadget) for a period of 10 years. Assume both companies follow ASPE. Details of the lease are as follows:
Equipment has a fair value and cost at the inception of the lease: $233,755.
Guaranteed residual value: $28,000.
Annual lease payment, due at beginning of each year: $34,250
Lease contains no renewal options and the equipment reverts to Carla at the end of the lease.
Gadgets incremental interest rate, as well as implicit rate is 11%
Gadget uses straight-line amortization for similar equipment that it owns
Carla has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred
Prepare the journal entries for the lessee and lessor at May 30, 2020, and at December 31, 2020, which is the year end for both the lessee and lessor. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
Date | Account Titles and Explanation | Debit | Credit |
May 30, 2020Dec. 31, 2020 | |||
(To record inception of lease.) | |||
(To record lease payment.) | |||
May 30, 2020Dec. 31, 2020 | |||
(To record interest.) | |||
Date | Account Titles and Explanation | Debit | Credit |
May 30, 2020Dec. 31, 2020 | |||
(To record inception of lease.) | |||
(To record collection of lease payment.) | |||
May 30, 2020Dec. 31, 2020 | |||
Prepare journal entries at May 30, 2021 for the lessee and lessor. Assume reversing entries are not used.
Date | Account Titles and Explanation | Debit | Credit |
May 30, 2021 | |||
Date | Account Titles and Explanation | Debit | Credit |
May 30, 2021 |
| ||
| |||
(To record interest.) | |||
|
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