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Flounder Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is

Flounder Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipments 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. The annual lease payment is $49,000 at the beginning of each year, and Flounders incremental borrowing rate is 7%, which is the same as the lessors implicit rate. Prepare all the necessary journal entries for Falls Company (the lessor) for 2020, assuming the equipment is carried at a cost of $328,000. Falls uses straight-line depreciation and the leased asset has zero residual value at the end of its useful life. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

1/1/2012/31/20

1/1/2012/31/20

(To record the recognition of the revenue each period)

1/1/2012/31/20

(To record depreciation expense on the leased equipment)

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