I. Leases On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cages incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Instructions: (a) Prepare the journal entry or entries that Cage should record on January 1, 2020. (Show two separate entries. One for recording the leased asset and one to record the initial payment). (b) Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. Include an amortization schedule. (c) Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. (The assumption referenced in this question means that there was no initial accrual of the interest expense with a corresponding credit to interest payable. Therefore, there would be no reversing entry made at the time of payment (i.e. no debit to interest payable to reverse the accrual). So, what accounts would be affected when this journal entry is made assuming these facts?) (d) What amounts will appear on the lessees December 31, 2020 balance sheet relative to the lease contract?

A IS NOT $500,000

ALL OF THE AMORTIZATION CALCULATION IS INCORRECT

THE LAST TWO ON D ARE INCORRECT.

PLEASE DON'T COPY AND PASTE AND ANSWER THAT IS ALREADY ON THIS WEBSITE

Debit Credit 12 (a) 13 Jan. 1 Use the present value tables in Chapter 6 (make sure to use the correct table!) Use the full present value factor (with all decimals) Right of Use Asset Lease Liability (To record the leased asset.) 14 15 16 17 Jan. 1 120,987 18 Lease Liability Cash (To record initial payment. ) 120,987 19 20 Credit Debit 220,000 Dec. 31 21 22 23 (b) 24 25 26 27 28 29 Amortization Expense Right of Use Asset (To record amortization.) 220,000 Dec. 31 21,451 Interest Expense Lease Liability (To record interest expense.) 21,451 30 39 AMORTIZATION SCHEDULE Annual Lease Payment 40 41 42 Date 01/01/20 01/01/20 01/01/21 01/01/22 01/01/23 01/01/24 43 Reduction of Balance of Lease Lease Interest (5%) on Liability Liability Liability 0 120,987 $ 429,013 0 $ 120,987 $ 429,013 21,451 $ 99,536 $ 329,477 16,474 $ 104,513 $ 224,964 11,248 $ 109,739 $ 115,225 5,761 $ 115,225 0.00 37,925 $ 325,036 $ 120,987 120,987 $ 120,987 $ 120,987 $ 120,987 $ $ 604,935 $ 44 45 46 47 48 49 (d) What amounts will appear on the lessee's balance sheet at December 31, 2020? $ 120,987 correct Current liabilities: Lease liability Long-term liabilities: Lease liability $ 33,000 incorrect Non-current assets: Right-of-use asset $ 330,000 incorrect