Cullumber Incorporated leases a piece of machinery to Riverbed Company on January 1, 2020, under the following terms. 1 2 3. The lease is to be for 4 years with rental payments of $ 11,013 to be made at the beginning of each year. The machinery has a fair value of $ 59,170, a book value of $ 44.160, and an economic life of 10 years. At the end of the lease term, both parties expect the machinery to have a residual value of $ 22,080. To protect against a large loss, Cullumber requests Riverbed to guarantee $ 15,310 of the residual value, which Riverbed agrees to do. The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature. The implicit rate is 5%, which is known by Riverbed. Collectibility of the payments is probable. 4 5. 6. Click here to view factor tables. Your answer is correct Evaluate the criteria for classification of the lease, and describe the nature of the lease. For the lessee, it is a finance lease and for the lessor, it is a sales type lease Prepare the journal entries for Riverbed for the year 2020. (Credit account titles are automatically indented when the 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 present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to decimal places eg. 5,275) Date Account Titles and Explanation Debit Credit Jan. 1 Right-of-Use Asset Lease Liability (To record lease) Jan. 1 Lease Lisbility Cash (To records first lease payment) Dec. Interest Expense 31 Lesso ability (To record accrued interest) Dec 31 Amortation Expense Right-of-Use Asta Prepare the journal entries for Cullumber for the year 2020. (Credit account titles are automatically indented when the 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 present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to decimal places eg. 5,275.) Date Account Titles and Explanation Debit Credit Jan. 1 Lease Receivable Cost of Goods Sold Sales Revenue Inventory (To record lease) Jan. 1 Cash Lease Receivable (To record first lease payment) N. Dec. 31 Lease Receivable (To record interest revenue) Suppose Riverbed did not guarantee any amount of the expected residual value. Prepare the journal entries for Riverbed for the year 2020. (Credit account titles are automatically indented when the 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 present value factor calculations to 5 decimal places, eg. 125124 and the final answer to decimal places eg. 5,275.) Date Account Titles and Explanation Debit Credit Jan. 1 Right-of-Use Asset Lease Liability (To record lease) Jan. 1 Lease Liability Cash (To record first lease payment) Dec 31 Lease Expense Lease Liability Right-of Use Asset (To record interest and amortization) Suppose Riverbed did not guarantee any amount of the expected residual value. Prepare the journal entries for Cullumber for the year 2020. (Credit account titles are automatically indented when the 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 present value factor calculations to 5 decimal places, es. 1.25124 and the final answer to 0 decimal places eg. 5,275.) Date Account Titles and Explanation Debit Credit Jan. 1 (To record lease payments) Dec. 31 (To record lease revenue) Dec. 31 UN (To record depreciation)
