On January 1, 2016, Concord Corp. signs a contract to lease manufacturing equipment from Stone Inc. Concord agrees to make lease payments of ,50 per year. Additional information pertaining to the lease is as follows: 1. The term of the noncancelable lease is 3 years, with a a renewal option at the end of the lease term. Payments are due every January 1, beginning January 1, 2016. 2. The fair value of the manufacturing equipment on January 1, 2016, is $150,000. The equipment has an economic life of 7 3. Concord guarantees that the equipment will have a residual value of $15,000 at the end of the lease term. 4. Concord Corp. depreciates similar assets using the straight line method. 5. Concords incremental borrowing rate is 15% per year; Stone's implicit interest rate is 10% and known by Concord. 6. Concord pays $2,500 per year for maintenance of the equipment and $1,000 in property taxes. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type oflease this is for Concord. 2. Calculate the amount of the asset and liability to be reported by Concord at the inception of the lease. 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Concord for the entine lease period. Assume that the equipment has a fain value of $9,500 at the end of the 3-year lease term. Chart of Accounts CHART OF ACCOUNTS General Ledger 411 Sales Revenue 111 Cash 121 Accounts Reoeivable 141 Inventory 500 Cost of Goods Sold 152 Prepaid Insurance 511 181 Leased Equipment 512 Utilties Expense 189 514 521 Salaries Expense 532 Bad Debt Expense 211 Accounts Payable 540 Interest Expense 231 Salaries Payable 252 Capital Lease obligation 541 255 Accrued interest on Capital Lease Obligation 559 Maoelaneous Expenses 201 Income Taxes Payable 891 Loss on Guaranteed Residual Value 010 Property Tax Expense 311 331 Retained Eamings On January 1, 2016, Concord Corp. signs a contract to lease manufacturing equipment from Stone Inc. Concord agrees to make lease payments of ,50 per year. Additional information pertaining to the lease is as follows: 1. The term of the noncancelable lease is 3 years, with a a renewal option at the end of the lease term. Payments are due every January 1, beginning January 1, 2016. 2. The fair value of the manufacturing equipment on January 1, 2016, is $150,000. The equipment has an economic life of 7 3. Concord guarantees that the equipment will have a residual value of $15,000 at the end of the lease term. 4. Concord Corp. depreciates similar assets using the straight line method. 5. Concords incremental borrowing rate is 15% per year; Stone's implicit interest rate is 10% and known by Concord. 6. Concord pays $2,500 per year for maintenance of the equipment and $1,000 in property taxes. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type oflease this is for Concord. 2. Calculate the amount of the asset and liability to be reported by Concord at the inception of the lease. 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Concord for the entine lease period. Assume that the equipment has a fain value of $9,500 at the end of the 3-year lease term. Chart of Accounts CHART OF ACCOUNTS General Ledger 411 Sales Revenue 111 Cash 121 Accounts Reoeivable 141 Inventory 500 Cost of Goods Sold 152 Prepaid Insurance 511 181 Leased Equipment 512 Utilties Expense 189 514 521 Salaries Expense 532 Bad Debt Expense 211 Accounts Payable 540 Interest Expense 231 Salaries Payable 252 Capital Lease obligation 541 255 Accrued interest on Capital Lease Obligation 559 Maoelaneous Expenses 201 Income Taxes Payable 891 Loss on Guaranteed Residual Value 010 Property Tax Expense 311 331 Retained Eamings
