Exercise 21A-12 a-f On January 1, 2017, Crane Company leased equipment to Flynn Corporation. The following information pertains to this lease: 1 The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase 2. 3. 4. 5. 6. the equipment for $3,000, while the expected residual value at the end of the lease is $5,000 Equal rental payments are due on January 1 of each year, beginning in 2017. The fair value of the equipment on January 1, 2017, is $150,000, and its cost is $120,000. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. Crane set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31 Click here to view the factor table (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Discuss the nature of this lease to Crane and Flynn The nature of this lease for Crane is a lease The nature of this lease for Flynn is a lease SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Calculate the amount of the annual rental payment. (Round answer to O decimal places, e.g. 5,275.) Annual rental payment SHOW LIST OF ACCOUNTS LINK TO TEXTLINK TO TEXT Prepare all the necessary journal entries for Crane for 2017. (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.) Date Account Titles and Explanation Debit Credit To record the lease) To record lease payment) 12/31/17 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Suppose the collectibility of the lease payments was not probable for Crane. Prepare the necessary journal entry for the company in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare all the necessary journal entries for Flynn for 2017. (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.) Date Account Titles and Explanation Debit Credit To record the lease) (To record the receipt of lease payment) 12/31/17 (To record amortization of the right-of-use asset) (To record interest expense) SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2,000 are incurred by Flynn for legal fees to execute the lease. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Acco unt Titles and Explanation Debit Credit Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Question Attempts: 0 of 15 used
