Question
Larkspur, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $28,000 from
Larkspur, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $28,000 from United Corporation. The agreement stipulates the following.
Rental payments of $6,493 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. | ||
Larkspur must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. | ||
Larkspur must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. | ||
Larkspur paid legal fees of $3,000 in executing the lease. |
Assuming Larkspurs incremental borrowing rate is 8% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Larkspur. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.) Click here to view factor tables.
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