Need help on PART F. Please show calculation. Thank you.
Sweet Leasing Company agrees to lease equipment to Pharoah Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $518,000, and the fair value of the asset on January 1, 2020, is $648,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Pharoah estimates that the expected residual value at the end of the lease term will be 50,000. Pharoah amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Sweet desires a 11% rate of return on its investments. Pharoah's incremental borrowing rate is 12%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables. Your Answer Correct Answer Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. finance lease for Pharoah. This is a sales-type lease for Sweet. eTextbook and Media Solution List of Accounts Attempts: 3 of 3 used Your answer is correct. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.) Annual rental payment $ 119283.48 Attempts: 1 of 3 used (c) Your answer is correct. Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,972.) Present value of minimum lease payments $ 609706.77 Attempts: 2 of 3 used Your Answer Correct Answer Your answer is correct. Prepare the journal entries Pharoah would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Account Titles and Explanation Debit Credit Date 1/1/20 Right-of-Use Asset 609,706.77 Lease Liability 609,706.77 (To record the lease.) Lease Liability 119283.48 Cash 119283.48 (To record lease payment.) 12/31/20 - Amortization Expense 87,100.97 Right-of-Use Asset 87,100.97 (To record amortization.) Interest Expense 58,850.79 Lease Liability 58,850.79 (To record interest.) 1 Lease Liability 1/1/21 119283.48 Cash 119283.48 12/31/21 Amortization Expense 87,100.97 Right-of-Use Asset 87,100.97 (To record amortization.) Interest Expense 51598.87 Lease Liability 51598.87 (To record interest.) Your Answer Correct Answer Your answer is correct. Prepare the journal entries Sweet would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Debit Credit Date 1/1/20 Account Titles and Explanation Lease Receivable 4 648,000 Cost of Goods Sold 518,000 Sales Revenue 648,000 Inventory 518,000 (To record the lease.) Cash 1/1/20 | 119283.48 119283.48 Lease Receivable (To record lease payment.) Lease Receivable 12/31/20 - 58158.82 Interest Revenue 58158.82 1/1/21 Cash 119283.48 Lease Receivable 119283.48 12/31/21 Lease Receivable 51435.10 Interest Revenue 51435.10 Suppose Pharoah expects the residual value at the end of the lease term to be $40,000 but still guarantees a residual of $50,000. Compute the value of the lease liability at lease commencement. Lease liability $
