Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Gordon Company, as lessee, enters into a lease agreement on January 1, 2016, with Wayne Corporation, as lessor, for equipment. The following data are relevant
Gordon Company, as lessee, enters into a lease agreement on January 1, 2016, with Wayne Corporation, as lessor, for equipment. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years, with no renewal option. Payments of $253, 613 are due on December 31 of each year, with the first payment occurring in one year on December 31, 2016. The fair value of the equipment on January 1, 2016 is $840,000. The equipment has an economic life of 6 years with no salvage value. Gordon depreciates similar machinery it owns on the straight-line basis. Gordon's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for4 periods at 8%, 3.312134; at 10%, 3.169861). Wayne originally purchased the equipment from Kent Company at a cost of $840,000. Collectability of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by Wayne Company. Indicate the type of lease Gordon Company has entered into and the reasons for your conclusion. Prepare the journal entries on Gordon's books that relate to the lease agreement for the following dates: (Round all amounts to the nearest dollar. Include a partial amortization schedule.) January 1, 2016. December 31, 2016. Indicate the type of lease Wayne Company has entered into and the reasons for your conclusion. Prepare the journal entries on Wayne's books that relate to the lease agreement for the following dates: (Round all amounts to the nearest dollar. Include a partial amortization schedule.) January 1, 2016. December 31, 2016
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started