Chapter 21 Homework Question 17 of 22 0.54 / 1 View Policies Show Attempt History Current Attempt in Progress On January 1, 2020, a machine was purchased for $880,000 by Windsor Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Wildhorse Inc. for 3 years on January 1, 2020, with annual rent payments of $290,000 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $562,500, though this amount is unguaranteed. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Correct answer iconYour answer is correct. How much should Windsor report as income before income tax on this lease for 2020? Income before income tax $ 180000 eTextbook and Media SolutionAssistance Used Overall from the leased asset, Windsor Co. will report $180,000 ($290,000 $110,000) for 2020 when netting the

lease revenue with depreciation expense. Lessor Entries for 2020: 1/1/20 Machine 880,000 Cash 880,000 Cash 290,000 Unearned Revenue 290,000 12/31/20 Unearned Revenue 290,000 Lease Revenue 290,000 Depreciation Expense 110,000 Accumulated Depreciation Leased Asset ($880,000 8) 110,000 List of Accounts Attempts: unlimited (b) Partially correct answer iconYour answer is partially correct. Record the journal entries Wildhorse would record for 2020 on this lease, assuming its incremental borrowing rate is 9% and the rate implicit in the lease is unknown. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20 Right-of-Use Asset 45913 Lease Liability 45913 (To record the lease) 1/1/20 Unearned Lease Revenue 290000 cash 290000 (To record lease payment) 12/31/20 Depreciation Expense Interest Expense Accumulated Depreciation-Buildings eTextbook and Media SolutionAssistance Used Right-of-Use Asset = $290,000 2.75911FVF-OA(3,9%) = $800,142 WILDHORSE INC. Lease Amortization Schedule Annuity-Due Basis Date Annual Payment Interest (9%) on Liability Reduction of Lease Liability Lease Liability 1/1/20 $800,142 1/1/20 $290,000 $0 $290,000 510,142 1/1/21 290,000 45,913 * 244,087 266,055 1/1/22 290,000 23,945 266,055 0 Lease Expense Schedule Date (A) Lease Expense (Straight-Line) (B) Interest (9%) on Lease Liability (C) Amortization of ROU Asset (A-B) Carrying Value of ROU Asset 1/1/20 $800,142 12/31/20 $290,000 $45,913 $244,087 556,055 12/31/21 290,000 23,945 266,055 290,000 12/31/22 290,000 0 290,000 0 *The accrual of the lease liability is a result of the accrual of interest related to the lease liability, as shown in the first schedule. Note that this is expensed along with the lease expense at the end of 2020. List of Accounts Attempts: unlimited (c) The parts of this question must be completed in order. This part will be available when you complete the part above. Right-of-Use Asset Lease Liability Unearned Lease Revenue Cash Depreciation Expense Interest Expense Accumulated Depreciation-Buildings