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Concord Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is
Concord Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Concord receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows. Yearly rental $3,424.20 Lease term 3 years Estimated economic life 5 years Purchase option Renewal option Fair value at commencement Cost of asset to lessor Residual value: $3,360 at end of 3 years, which approximates fair value 1 year at $1,680; no penalty for nonrenewal; standard renewal clause $11,200 $11,200 Guaranteed -0- Unguaranteed $3,360 Lessor's implicit rate (known by the lessee) 11% Estimated fair value at end of lease $3,360 Analyze the lease capitalization tests for this lease for Concord. Prepare the journal entries for Concord for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 2 decimal places, e.g. 52.75. If no entry is required, select "No entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.) Click here to view factor tables. Date Account Titles and Explanation 1/1/20 Right-of-Use Asset 1/1/20 12/31/20 Lease Liability (To record the lease) Lease Liability Cash (To record the first lease payment) Lease Expense Lease Liability Right-of-Use Asset (To record year end entry) Debit 11746.66 3424.2 3264.75 Credit 11746.66 3424.2 915.46 2349.29
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