Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease.

image text in transcribedimage text in transcribed

Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the $65,949.37 payments on January 1 each year and that the fair value at the lease inception is now $275,000 ($65,949:37 x 4:169865). General Journal Instructions PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 Jan. 1 275,000.00 2 275,000.00 3 Jan. 1 65,949.37 4 Cash 65,949.37 5 Dec. 31 Interest Expense 20,905.06 6 20,905.06 7 Dec. 31 Equipment 55,000.00 Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. The equipment is not specialized for Garvey. 2. The lease term is 5 years and requires Garvey to make annual payments of $65,949.37 at the end of each year. 3. The discount rate is 10%, which is implicit in the lease. Garvey knows this rate. 4. The fair value of the equipment at the lease inception is $250,000. The present value of an ordinary annuity of five payments of $65,949.37 each at 10% is $250,000. 5. The equipment has an estimated economic life of 7 years and has zero residual value at the end of this time. Straight-line depreciation is used for similar assets. Required: Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the $65,949.37 payments on January 1 each year and that the fair value at the lease inception is now $275,000 ($65,949:37 x 4:169865)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Accounting Volume 1

Authors: Tracie Miller Nobles, Brenda Mattison, Ella Mae Matsumura, Carol Meissner, JoAnn Johnston, Peter Norwood

11th Canadian Edition

0135359708, 9780135359709

More Books

Students also viewed these Accounting questions

Question

=+d. Write at least five sentences or phrases for body copy.

Answered: 1 week ago

Question

=+b. Create a tagline.

Answered: 1 week ago