Question
Nace Manufacturing Company (Use for Problems 8-12) Nace Manufacturing Company leased a piece of nonspecialized equipment for use in its operations from Righteous Leasing on
Nace Manufacturing Company (Use for Problems 8-12) Nace Manufacturing Company leased a piece of nonspecialized equipment for use in its operations from Righteous Leasing on January 1, 2019. The 10-year lease requires lease payments of $4,000, beginning on January 1, 2019, and at each December 31 thereafter through 2027. The equipment is estimated to have a 10-year life, is depreciated on the straight-line basis and will have no residual value at the end of the lease term. Nace's incremental borrowing rate is 11%. Initial direct costs of $1,000 are incurred on January 1, 2019. Righteous Leasing acquired the asset just prior to the lease term at a cost of $27,000. Collection of all lease payments is reasonably assured. Problem 8 What is the proper classification of the lease to Nace? Problem 9 What is the amount of the lease liability recorded by Nace at the lease's commencement? Problem 10 What is the value of the right-of-use asset to Nace at the lease's commencement? Problem 11 Based on the above information, prepare an amortization table for the Nace Manufacturing's lease liability. Payment Interest Reduction Balance Commencement 1-Jan-19 31-Dec-19 31-Dec-20 31-Dec-21 31-Dec-22 31-Dec-23 31-Dec-24 31-Dec-25 31-Dec-26 31-Dec-27 Problem 12 Based on the above information, prepare Nace Manufacturing's journal entries at the commencement of the lease, January 1 and December 31, 2019 payments, and amortization of the right-of-use asset.
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