Question
On January 1, 2020, Crane Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease
On January 1, 2020, Crane Company leased equipment to Flynn Corporation. The following information pertains to this lease.
1. | The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $5,000. | |
2. | Equal rental payments are due on January 1 of each year, beginning in 2020. | |
3. | The fair value of the equipment on January 1, 2020, is $150,000, and its cost is $120,000. | |
4. | The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. | |
5. | Crane set the annual rental to ensure a 6% rate of return. Flynns incremental borrowing rate is 7%, and the implicit rate of the lessor is unknown. | |
6. | Collectibility of lease payments by the lessor is probable. |
Both the lessor and the lessees accounting periods end on December 31.
*(e)
Your answer is partially correct. Try again. |
Prepare all the necessary journal entries for Flynn for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Date | Account Titles and Explanation | Debit | Credit |
1/1/20 | Right-of-Use Asset |
| |
Lease Liability |
| ||
(To record the lease) | |||
1/1/20 | Lease Liability | 28372 |
|
Cash |
| 28372 | |
(To record the lease payment) | |||
12/31/20 | Depreciation Expense ? (not correct) |
| |
Right-of-Use Asset |
| ||
(To record amortization of the right-of-use asset) | |||
12/31/20 | Interest Expense |
| |
Lease Liability |
| ||
(To record interest expense) |
Need help with section E. Thank you.
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