Question
Hero Company entered into two lease agreements for the acquisition of equipment during 20x5: Lease 1 Date of lease inception and first lease payment FV
Hero Company entered into two lease agreements for the acquisition of equipment during 20x5:
Lease 1
Date of lease inception and first lease payment FV of. Jan 2, 20x5
FV of equipment. $120,000
Lease term 6 years
Useful life. 8 years
Residual value: Unguaranteed
- End of lease term $11,000
-end of useful life. $4,000
Interest rate implicit in lease. 5.5%
Lease 2
Date of lease inception and first lease payment July 1, 20x5
FV of equipment. $75,000
Lease term. 5 years
Useful life 10years
Residual value: Guaranteed
- end of lease term $ 30,000
- end of useful life $5000
Interest rate implicit in lease. 8%
Annual maintenance costs payable on July 1 of
each year. $5000
Estimate of fair value of asset at the end of the
lease term. $10000
Lease payments made under each of these leases were debited to Administrative expenses. No other entries were made for the leases. For both leases, the lessor took into account the residual value at the end of the lease term when calculating the lease payments.
Required -
For each of the leases -
a) Prepare the adjusting journal entries at December 31, 20x5 for each of the two lease agreements.
b) Prepare the journal entries for the year ended December 31, 20x6.
c) Assume ASPE. Redo parts (a) and (b) for both leases.
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