Question
P21-6 (Lessee Entries with Residual Value) The following facts pertain to a noncancelable lease agree- ment between Faldo Leasing Company and Vance Company, a lessee.
P21-6 (Lessee Entries with Residual Value) The following facts pertain to a noncancelable lease agree- ment between Faldo Leasing Company and Vance Company, a lessee. Inception date Annual lease payment due at the beginning of each year, beginning with January 1, 2014 Residual value of equipment at end of lease term, guaranteed by the lessee Lease term Economic life of leased equipment Fair value of asset at January 1, 2014 Lessors implicit rate Lessees incremental borrowing rate January 1, 2014 $124,798 $50,000 6 years 6 years $600,000 12% 12% The lessee assumes responsibility for all executory costs, which are expected to amount to $5,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $50,000. The lessee uses the straight-line depreciation method for all equipment. Instructions (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (b) Prepare all of the journal entries for the lessee for 2014 and 2015 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessees annual accounting period ends on December 31 and reversing entries are used when appropriate.
(1) What items and amounts will appear on the lessor's income statement for the year ending
September 30, 2015?
(2) What items and amounts will appear on the lessor's balance sheet at September 30, 2015?
(3) What items and amounts will appear on the lessor's income statement for the year
ending September 30, 2016?
(4) What items and amounts will appear on the lessor's balance sheet at September 30, 2016?
Assuming the lessor's accounting period ends on December 31, answer the following questions
with respect to this lease agreement:
(1) What items and amounts will appear on the lessor's income statement for the year ending
December 31, 2014?
(2) What items and amounts will appear on the lessor's balance sheet at December 31, 2014?
(3) What items and amounts will appear on the lessor's income statement for the year ending
December 31, 2015?
(4) What items and amounts will appear on the lessor's balance sheet at December 31, 2015?
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