Answered step by step
Verified Expert Solution
Question
1 Approved Answer
**Please note that all previous answers are incorrect.** - Thank you! Berne Company (lessor) enters into a lease with Fox Company to lease equipment to
**Please note that all previous answers are incorrect.** - Thank you!
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016. The lease terms, provisions, and related events are as follows:
1. | The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year. |
2. | The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero. |
3. | Fox agrees to pay all executory costs. |
4. | The interest rate implicit in the lease is 12%. |
5. | The initial direct costs are insignificant and assumed to be zero. |
6. | The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. |
Required:
1. | Next Level Determine if the lease is a sales-type or direct financing lease from Bernes point of view (calculate the selling price and assume that this is also the fair value). |
2. | Prepare a table summarizing the lease receipts and interest revenue earned by the lessor. |
3. | Prepare journal entries for Berne, the lessor, for the years 2016 and 2017. |
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