Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment toShamrockCompany. The following information relates to this agreement. 1.The term of the
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment toShamrockCompany. The following information relates to this agreement.
1.The term of the non-cancelable lease is3years with no renewal option. The equipment has an estimated economic life of 5 years.2.The fair value of the asset at January 1, 2020, is $85,000.3.The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $5,000, none of which is guaranteed.4.The agreement requires equal annual rental payments of $27,911to the lessor, beginning on January 1, 2020.5.The lessee's incremental borrowing rate is5%. The lessor's implicit rate is4% and is unknown to the lessee.6.Shamrockuses the straight-line depreciation method for all equipment.
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Shamrock Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. The fair value of the asset at January 1, 2020, is $85,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $5,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $27,911 to the lessor, beginning on January 1, 2020. 5. The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee. 6. Shamrock uses the straight-line depreciation method for all equipment. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e3. 5,265.) SHAMROCK COMPANY (Lessee) Lease Amortization Schedule Annual Lease Interest on Reduction of Lease Date Payment Liability Liability Lease Liability 1/1/20 $ $ $ $ 71809 21/1/20 27911 0 27911 51898 21/1/21 27911 2595 25316 26582 21/1/22 27911 1329 26582 0 Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20 V Right-ofUse Asset Lease Liability (To record the lease) 1/1/20 V Lease Liability Cash (To record lease payment) During 2020 V Interest Expense Interest Payable (To record interest expense) 12/31/20 V Depreciation Expense Accumulated Depreciation-Right-of-Use Asset (To record amortization of the right-ofuse asset) 1/1/21 V Interest Payable Interest Expense (To reverse interest expense) During 2021 v Interest Expense Lease Liability Cash (To record lease payment) 12/31/21 V Interest Expense Interest Payable (To record interest expense) 12/31/21 V Depreciation Expense Accumulated Depreciation-Right-of-Use Asset (To record amortization of the right-of-use asset)