Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 2017, Bare Trees Company signed a three-year noncancelable lease with Dreams Inc. The lease calls for three payments of $62,258.09 to be

On January 1, 2017, Bare Trees Company signed a three-year noncancelable lease with Dreams Inc. The lease calls for three payments of $62,258.09 to be made at each year-end. The lease payments include $3,000 of executory costs related to service. The lease is nonrenewable and has no bargain purchase option. Ownership of the leased asset reverts to Dreams at the end of the lease period, at which time Bare Trees has guaranteed that the leased asset will be worth at least $15,000. The leased asset has an expected useful life of four years, and Bare Trees uses straight-line depreciation for financial reporting purposes. Bare Trees incremental borrowing rate is 9%. Bare Trees and Dreams account for leases under ASC 842. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.)

Required:

1. Prepare Bare Trees Companys amortization schedule for the lease liability.

2. Prepare Bare Trees Companys journal entries to record (a) the lease on January 1, 2017; (b) the lease payments on December 31, 2017 and 2018; and (c) the leased assets depreciation in 2017 and 2018.

3. Assume that at the end of the lease term, the leased asset will be worth $16,000. Make Bare Trees Companys journal entry to account for the residual value guarantee.

4. Repeat requirement 3, but assume that the leased asset will be worth only $12,000 at the end of the lease term.

image text in transcribedimage text in transcribedimage text in transcribed

TABLE 1 Present Value of $1 Periods 2% 3% 5% 6% 7% 8% 9% 10% 11% 12% 15% 16% 17% 1 0.98039 0.97087 0.96154 0.95238 0.94340 0.93458 0.92593 0.91743 0.90909 0.90090 0.89286 0.86957 0.86207 0.85470 2 0.96117 0.94260 0.92456 0.90703 0.89000 0.87344 0.85734 0.84168 0.82645 0.81162 0.79719 0.75614 0.74316 0.73051 3 0.94232 0.91514 0.88900 0.86384 0.83962 0.81630 0.79383 0.77218 0.75132 0.73119 0.71178 0.65752 0.64066 0.62437 4 0.92385 0.88849 0.85480 0.82270 0.79209 0.76290 0.73503 0.70843 0.68301 0.65873 0.63552 057175 0.55229 0.53365 5 0.90573 0.86261 0.82193 0.78353 0.74726 0.71299 0.68058 0.64993 0.62092 0.59345 0.56743 049718 0.47611 045611 6 0.88797 0.83748 0.79031 0.74622 0.70496 0.66634 0.63017 0.59627 0.56447 0.534640.50663 043233 0.41044 0.38984 7 0.87056 0.81309 0.75992 0.71068 0.66506 0.62275 0.58349 0.54703 0.51316 0.48166 0.45235 0.37594 0.35383 0.33320 8 0.85349 0.78941 0.73069 0.67684 0.62741 0.58201 0.54027 0.50187 0.46651 0.43393 0.40388 0.32690 0.30503 0.28478 9 0.83676 0.76642 0.70259 0.64461 0.59190 0.54393 0.50025 046043 0.42410 0.39092 0.36061 0.28426 0.26295 0.24340 10 0.82035 0.74409 0.67556 0.61391 0.55839 0.50835 0.46319 042241 0.38554 0.35218 0.32197 0.24718 0.22668 0.20804 11 0.80426 0.72242 0.64958 0.58468 0.52679 0.47509 0.42888 0.38753 0.35049 0.31728 0.28748 0.21494 0.19542 0.17781 12 0.78849 0.70138 0.62460 0.55684 0.49697 0.44401 0.39711 0.35553 0.31863 0.28584 0.25668 0.18691 0.16846 0.15197 13 0.77303 0.680950.60057 0.53032 0.46884 0.41496 0.36770 0.32618 0.28966 0.25751 0.22917 0.16253 0.14523 0.12989 14 0.75788 0.66112 0.57748 0.50507 0.44230 0.38782 0.34046 0.29925 0.26333 0.23199 0.20462 0.14133 0.12520 0.11102 15 0.74301 0.64186 0.55526 0.48102 0.41727 0.36245 0.31524 0.27454 0.23939 0.20900 0.18270 0.12289 0.10793 0.09489 16 0.72845 0.623170.53391 0.45811 0.39365 0.33873 0.29189 0.25187 0.21763 0.18829 0.16312 0.10686 0.09304 0.08110 17 0.71416 0.60502 0.51337 0.43630 0.37136 0.31657 0.27027 0.23107 0.19784 0.16963 0.14564 0.09293 0.08021 0.06932 18 0.70016 0.58739 049363 0.41552 0.35034 0.29586 0.25025 0.21199 0.17986 0.15282 0.13004 0.08081 0.06914 0.05925 19 0.68643 0.57029 047464 0.39573 0.33051 0.27651 0.23171 0.19449 0.16351 0.13768 0.11611 0.07027 0.05961 0.05064 20 0.67297 0.55368 045639 0.37689 0.31180 0.25842 0.21455 0.17843 0.14864 0.12403 0.10367 0.06110 0.05139 0.04328 25 0.60953 0.47761 0.37512 0.29530 0.23300 0.18425 0.14602 0.11597 0.09230 0.07361 0.05882 0.03038 002447 0.01974 30 0.55207 0.41199 0.30832 0.23138 0.17411 0.13137 0.09938 0.07537 0.05731 0.04368 0.03338 0.01510 0.01165 0.00900 35 0.50003 0.35538 0.25342 0.18129 0.13011 0.09366 0.06763 0.04899 0.03558 0.02592 0.01894 0.00751 0.00555 0.00411 40 0.45289 0.30656 0.20829 0.14205 0.09722 0.06678 0.04603 0.03184 0.02209 0.01538 0.01075 0.00373 0.00264 0.00187 TABLE 1 Present Value of $1 Periods 2% 3% 5% 6% 7% 8% 9% 10% 11% 12% 15% 16% 17% 1 0.98039 0.97087 0.96154 0.95238 0.94340 0.93458 0.92593 0.91743 0.90909 0.90090 0.89286 0.86957 0.86207 0.85470 2 0.96117 0.94260 0.92456 0.90703 0.89000 0.87344 0.85734 0.84168 0.82645 0.81162 0.79719 0.75614 0.74316 0.73051 3 0.94232 0.91514 0.88900 0.86384 0.83962 0.81630 0.79383 0.77218 0.75132 0.73119 0.71178 0.65752 0.64066 0.62437 4 0.92385 0.88849 0.85480 0.82270 0.79209 0.76290 0.73503 0.70843 0.68301 0.65873 0.63552 057175 0.55229 0.53365 5 0.90573 0.86261 0.82193 0.78353 0.74726 0.71299 0.68058 0.64993 0.62092 0.59345 0.56743 049718 0.47611 045611 6 0.88797 0.83748 0.79031 0.74622 0.70496 0.66634 0.63017 0.59627 0.56447 0.534640.50663 043233 0.41044 0.38984 7 0.87056 0.81309 0.75992 0.71068 0.66506 0.62275 0.58349 0.54703 0.51316 0.48166 0.45235 0.37594 0.35383 0.33320 8 0.85349 0.78941 0.73069 0.67684 0.62741 0.58201 0.54027 0.50187 0.46651 0.43393 0.40388 0.32690 0.30503 0.28478 9 0.83676 0.76642 0.70259 0.64461 0.59190 0.54393 0.50025 046043 0.42410 0.39092 0.36061 0.28426 0.26295 0.24340 10 0.82035 0.74409 0.67556 0.61391 0.55839 0.50835 0.46319 042241 0.38554 0.35218 0.32197 0.24718 0.22668 0.20804 11 0.80426 0.72242 0.64958 0.58468 0.52679 0.47509 0.42888 0.38753 0.35049 0.31728 0.28748 0.21494 0.19542 0.17781 12 0.78849 0.70138 0.62460 0.55684 0.49697 0.44401 0.39711 0.35553 0.31863 0.28584 0.25668 0.18691 0.16846 0.15197 13 0.77303 0.680950.60057 0.53032 0.46884 0.41496 0.36770 0.32618 0.28966 0.25751 0.22917 0.16253 0.14523 0.12989 14 0.75788 0.66112 0.57748 0.50507 0.44230 0.38782 0.34046 0.29925 0.26333 0.23199 0.20462 0.14133 0.12520 0.11102 15 0.74301 0.64186 0.55526 0.48102 0.41727 0.36245 0.31524 0.27454 0.23939 0.20900 0.18270 0.12289 0.10793 0.09489 16 0.72845 0.623170.53391 0.45811 0.39365 0.33873 0.29189 0.25187 0.21763 0.18829 0.16312 0.10686 0.09304 0.08110 17 0.71416 0.60502 0.51337 0.43630 0.37136 0.31657 0.27027 0.23107 0.19784 0.16963 0.14564 0.09293 0.08021 0.06932 18 0.70016 0.58739 049363 0.41552 0.35034 0.29586 0.25025 0.21199 0.17986 0.15282 0.13004 0.08081 0.06914 0.05925 19 0.68643 0.57029 047464 0.39573 0.33051 0.27651 0.23171 0.19449 0.16351 0.13768 0.11611 0.07027 0.05961 0.05064 20 0.67297 0.55368 045639 0.37689 0.31180 0.25842 0.21455 0.17843 0.14864 0.12403 0.10367 0.06110 0.05139 0.04328 25 0.60953 0.47761 0.37512 0.29530 0.23300 0.18425 0.14602 0.11597 0.09230 0.07361 0.05882 0.03038 002447 0.01974 30 0.55207 0.41199 0.30832 0.23138 0.17411 0.13137 0.09938 0.07537 0.05731 0.04368 0.03338 0.01510 0.01165 0.00900 35 0.50003 0.35538 0.25342 0.18129 0.13011 0.09366 0.06763 0.04899 0.03558 0.02592 0.01894 0.00751 0.00555 0.00411 40 0.45289 0.30656 0.20829 0.14205 0.09722 0.06678 0.04603 0.03184 0.02209 0.01538 0.01075 0.00373 0.00264 0.00187

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Bookkeeping And Auditing A Career Guide

Authors: Harry Watts

1st Edition

1639878106, 1639878106

More Books

Students also viewed these Accounting questions

Question

When should you avoid using exhaust brake select all that apply

Answered: 1 week ago