Problem 21-02 b-f On January 1, 2020, Buffalo Company contracts to lease equipment for 5 years, agreeing to make a payment of $107,984 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $443,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Buffalo's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Buffalo. Title to the equipment transfers to Buffalo at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. Prepare the journal entries that Buffalo should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to o decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation January 1, 2020 (To record the lease.) (To record lease payment.) Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to o decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2020 (To record amortization of the leased asset.) December 31, 2020 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to o decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation January 1, 2021 What amounts will appear on the lessee's December 31, 2020, balance sheet relative to the lease contract? BUFFALO COMPANY Balance Sheet (Partial) Assets Liabilities SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT How would the value of the lease liability in part b change if Buffalo also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? (Round answers to 0 decimal places, e.g. 5,275.) The lease liability Problem 21-02 b-f On January 1, 2020, Buffalo Company contracts to lease equipment for 5 years, agreeing to make a payment of $107,984 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $443,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Buffalo's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Buffalo. Title to the equipment transfers to Buffalo at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. Prepare the journal entries that Buffalo should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to o decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation January 1, 2020 (To record the lease.) (To record lease payment.) Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to o decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2020 (To record amortization of the leased asset.) December 31, 2020 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to o decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation January 1, 2021 What amounts will appear on the lessee's December 31, 2020, balance sheet relative to the lease contract? BUFFALO COMPANY Balance Sheet (Partial) Assets Liabilities SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT How would the value of the lease liability in part b change if Buffalo also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? (Round answers to 0 decimal places, e.g. 5,275.) The lease liability
