Question
Oriole Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement: 1.
Oriole Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement:
1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $902,966 are due on July 1 of each year.2. The fair value of the equipment on July 1, 2021 is $3,230,000. The equipment has an economic life of 6 years with no salvage value.3. Oriole depreciates similar machinery it owns on the sum-of-the-years'-digits basis.4. The lessee pays all executory costs.5. Oriole's incremental borrowing rate is 9% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments.
a/ Indicate the type of lease Oriole Company has entered into and what accounting treatment is applicable.
b/ make the journal entries on Oriole's books that relate to the lease agreement for the following dates: (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,250.)
1. July 1, 2021.2. December 31, 2021.3. July 1, 2022.4. December 31, 2022.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started