Question
(Please show work and calculations) On January 1, 2021, Lessee Co. leased machinery from Lessor Co. Presented below is selected information about the non-cancelable lease
(Please show work and calculations)
On January 1, 2021, Lessee Co. leased machinery from Lessor Co. Presented below is selected information about the non-cancelable lease agreement, the leased equipment, and the parties to the lease. The lease term is 3 years, at the end of which time the machine is to be returned to Lessor. The equipment is stock machinery, and Lessor has plans for its use when it is returned. The lease requires 3 beginning-of-the-year rental payments of $6,822 each. Lessor has no concerns about collecting the rentals from Lessee. The useful life of the equipment is estimated to be 7 years. The equipment cost Lessor $30,000 and has an approximate fair value of $42,000. The equipments residual value is expected to be $27,000 and is not guaranteed. Lessor determined the rentals so as to earn a 6% return. Lessee has a borrowing rate of 8% and is unable to determine Lessors implicit rate. In applying FASB ASC 842, Lessee and Lessor have each independently determined that the agreement is an operating lease.
RequiredPrepare all lease-related journal entries that Lessee and Lessor, respectively, should have recorded on each of the following dates, supported by computational schedules as appropriate: January 1, 2021 December 31, 2021 Note: Do not demonstrate why/how the agreement represents an operating lease to each party.
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