Flounder Corporation entered into a lease agreement on January 1, 2020, to provide Pharoah Company with a piece of machinery. The terms of the lease agreement were as follows. 1. The lease is to be for 3 years with rental payments of $11,933 to be made at the beginning of each year. 2. The machinery has a fair value of $59,000, a book value of $40,000, and an economic life of 8 years. 3. At the end of the lease term, both parties expect the machinery to have a residual value of $30,000, none of which is guaranteed. 4. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. 5. The implicit rate is 6%, which is known by Dawkins. 6. Collectibility of the payments is probable. Screen Shot 2020-08-10 at 1.55.22 P Click here to view factor tables. Prepare the 2020 journal entries for Pharoah. (Credit account tidles are automatically indented when the amount is entered. Do not i titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answe Debit Credit Evaluate the criteria for classification of the lease, and describe the nature of the lease. Date Account Titles and Explanation Jan. 1 For the lessee, it is a and for the lessor, it is a Prepare the amortization schedules Pharoah will use over the lease term. (To record lease) Jan. 11 PHAROAH COMPANY Lease Amortization Schedule Annuity-Due Basis Reduction of on Liability Lease Liability (To record first lease payment) Dec. 31 Interest Date Annual Payment Lease Liability 1/1/20 $ 1/1/20 (To record lease expense and amortization) Prepare the 2020 journal entries for Flounder. (Credit account titles are automatically indented when the amount is entered. Do not titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, c.g. 1.25124 and the final answe Date Account Titles and Explanation Debit Credit Jan. 1 1/1/21 1/1/22 (To record lease payments) Dec. 31 Lease Expense Schedule (C) Amortization of (B) Right-of-Use Asset Interest on (and Liability) Lease Liability (A-B) (To record lease revenue) (A) Straight-Line Expense Carrying Value of Right-of-Use Asset Dec. 31 Date 1/1/20 (To record depreciation) Suppose the lease were only for one year instead of 3 years, with just one lease payment at the beginning of the lease term. Prepare any jours (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, se present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to a decimal places e.g. 58,971.) 12/31/20 s. $ 12/31/21 Date Account Titles and Explanation Debit Credit Jan. 1 12/31/22 Prepare the 2020 journal entries for Pharoah. (Credit account titles are automatically indented when the amount is entered. Do not ind titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to u decimal places e.g. 58,971.)
