Problem 15-18 Lessee-guaranteed residual value; unguaranteed residual value; nonlease costs; different interest rates for lessor and lessee [LO15-3, 15-6, 15-7]

On December 31, 2018, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $37,000 for the truck. Its retail value is $44,146. The lease agreement specified annual payments of $11,000 beginning December 31, 2018, the beginning of the lease, and at each December 31 through 2021. Branch Motors interest rate for determining payments was 6%. At the end of the four-year lease term (December 31, 2022) the truck was expected to be worth $14,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line amortization or depreciation. Yard Art guaranteed a residual value of $6,000. Yard Arts incremental borrowing rate is 5% and is unaware of Branchs implicit rate. A $2,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expedient, Branch Motors agreed to pay this fee. It is, however, reflected in the $11,000 lease payments. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: (Answers in italics are correct and no assistance is needed on those; added for informational purposes only.) 1. How should this lease be classified by Yard Art Landscaping (the lessee)? Finance Lease 2. Calculate the amount Yard Art Landscaping would record as a right-of-use asset and a lease liability. Not $40,403 or $44,146. 3. How should this lease be classified by Branch Motors (the lessor)? Sales-Type Lease 5. Calculate the amount Branch Motors would record as sales revenue. Not $40,403 or $52,475 6. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2018.

9. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2019.

9-1 General Journal options (No journal entry required, Deferred initial direct cost, Deferred lease expenses payable, Lease expense, - I am thinking it could be Lease expense??)

9-2 No idea on this one other than I know Lease Payable should be a debit while Cash should be a credit. Not sure on the amounts.

11. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2022 (the end of the lease term), assuming the truck is returned to the lessor and the actual residual value of the truck was $4,000 on that date.

Journal entry worksheet 3 4 Record the lease payment for Yard Art. Note: Enter debits before credits. Date General Journal Debit Credit 9,000 2,000 2 December 31, 201 Lease payable Maintenance expense Cash 11.000 0 Record the maintenance expense for Yard Art. lote: Enter debits before credits. Date General Journal Debit Credit Maintenance fee payable Maintenance expense December 31,2019 8,000 8,000 1 3 4 Record the lease payment for Yard Art. Note: Enter debits before credits. Date General Journal Debit Credit Maintenance expense Cash December 31, 2019 2,000 9,000 3 Lease payable Interest expense Maintenance fee payable 7500 1,500 2,000 Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2022 (the end of the lea assuming the truck is returned to the lessor and the actual residual value of the truck was $4,000 on that date required for a transaction/event, select "No journal entry required" in the first account field. Round your inter final answers to nearest whole dollar.) No Date General Journal Debit Credit 1 December 31, 202 Maintenance expense 2,000 Maintenance fee payable 2,000 4,000 6 2 December 31, 202 Depreciation expense Right-of-use asset 4,000 3 December 31, 202 Lease payable 6,352 Right-of-use asset 6,352 01 4,000. 2,000 4 December 31, 202 Equipment Loss on leased assets Cash Lease receivable Interest revenue 2,122 3,693 185 63 Record the last cash receipt on lease and settlement of lease by Branch Motors. Journal entry worksheet 3 4 Record the lease payment for Yard Art. Note: Enter debits before credits. Date General Journal Debit Credit 9,000 2,000 2 December 31, 201 Lease payable Maintenance expense Cash 11.000 0 Record the maintenance expense for Yard Art. lote: Enter debits before credits. Date General Journal Debit Credit Maintenance fee payable Maintenance expense December 31,2019 8,000 8,000 1 3 4 Record the lease payment for Yard Art. Note: Enter debits before credits. Date General Journal Debit Credit Maintenance expense Cash December 31, 2019 2,000 9,000 3 Lease payable Interest expense Maintenance fee payable 7500 1,500 2,000 Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2022 (the end of the lea assuming the truck is returned to the lessor and the actual residual value of the truck was $4,000 on that date required for a transaction/event, select "No journal entry required" in the first account field. Round your inter final answers to nearest whole dollar.) No Date General Journal Debit Credit 1 December 31, 202 Maintenance expense 2,000 Maintenance fee payable 2,000 4,000 6 2 December 31, 202 Depreciation expense Right-of-use asset 4,000 3 December 31, 202 Lease payable 6,352 Right-of-use asset 6,352 01 4,000. 2,000 4 December 31, 202 Equipment Loss on leased assets Cash Lease receivable Interest revenue 2,122 3,693 185 63 Record the last cash receipt on lease and settlement of lease by Branch Motors