Question
Company 1, as lessee, enters into a lease agreement on January 1, 2018, for equipment. The following data are relevant to the lease agreement: 1.The
Company 1, as lessee, enters into a lease agreement on January 1, 2018, for equipment. The following data are relevant to the lease agreement:
1.The term of the noncancelable lease is 4 years. Payments of $4,892 are due on January 1 of each year.
2.The fair value of the equipment on January 1, 2018 is $25,000 and the book value is 20,000. The equipment has an economic life of 6 years.Both parties expect the equipment to have an unguaranteed residual value of $8,250 at the end of the lease term. The equipment reverts to the lessor at the end of the lease term. The equipment is not of a specialized nature and there is no purchase option.
3.The lessee pays all executory costs.
4.The interest rate implicit in the lease is 5% and known to Falwell.
(a)Indicate the type of lease Company 1 has entered into and what accounting treatment is applicable.
(b)Prepare lease amortization schedule (s) for Falwell Company for the first three years.
(c)Prepare the journal entries on Company's books that relate to the lease agreement for the following dates:
1.January 1, 2018.
2.December 31, 2018.
3.January 1, 2019.
4.December 31, 2019.
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