Problem 4: [LC; IDC]
Yes Problem 4. Following are the terms of a lease entered into on January 20, 2020. [LC, IDC] FMV of asset at inception of lease $500,000.00 Estimated residual value of asset at lease termination $80,000.00 Portion of residual value guaranteed by Lessee $50,000.00 Lessor's amortized cost of asset at inception of lease $500,000.00 Duration oflease 2 yrs Lease payment amount $230,458.00 Frequency of payments annually First payment due at inception of lease? Purchase option that Lessee is reasonably certain to exercise? No Title transfers to Lessee at any time during or at end of lease? No Lessor's implicit rate 12% Lessee's incremental borrowing rate 12% Does Lessee know Lessor's implicit rate? Remaining economic life of asset 5 yrs Economic life of asset when new 5 yrs Specialized use asset with no alternative use to Lessor at end of lease? no Nonlease components included in lease payment? Initial direct costs incurred by Lessor (assume recorded by Lessor in Misc. Expenses when incurred) $10,000 Initial direct costs incurred by Lessee (assume recorded by Lessor in Misc. Expenses when incurred) $12,000 Required 1. Prepare Lessor's and Lessee's entry to record the lease on January 20, 2020. Assume that the initial direct costs incurred by each were incurred on January 5, 2020 and were recorded in Miscellaneous Expenses on that date. yes no Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Entries by Lessee at inception of lease on 1/20/2020: Account Debit Credit 1 1 1 1 1 1 1 1 1 Entries by Lessor at inception of lease on 1/20/2020: Account Debit Credit N N N N 2 2 2. Redo Lessor's entry to book the lease on January 20, 2020 assuming that the Lessor's amortized cost of the asset is $400,000. Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Entries by Lessor at inception of lease on 1/20/2020: Account Debit Credit 3 3 3 ww 3 Column1 Accumulate depreciation (Bal. Sht) Cash (Bal. Sit) Deferred reht revenue (Bal. Sht) Equipment Bal. Sht) Lease payable (Bal. Sht) Lease receivable (Bal. Sht) Note payabile (Bal. Sht) Prepaid sen ice contract (Bal. Sht) Right-of-Use asset (Bal. Sht) Warehouse Bal. Sht) Amortization expense Inc. Stmt) Cost of goods sold (Inc. Stmt) Gain on sale of warehouse (Inc. Stmt) Interest expense (Inc. Stmt) Interest revenue (Inc. Stmt) Lease experse (Inc. Stmt) Lease revenue (Inc. Stmt) Misc. expenses (Inc. Stmt) Rent revenue (Inc. Stmt) Sales revenile (Inc. Stmt) Yes Problem 4. Following are the terms of a lease entered into on January 20, 2020. [LC, IDC] FMV of asset at inception of lease $500,000.00 Estimated residual value of asset at lease termination $80,000.00 Portion of residual value guaranteed by Lessee $50,000.00 Lessor's amortized cost of asset at inception of lease $500,000.00 Duration oflease 2 yrs Lease payment amount $230,458.00 Frequency of payments annually First payment due at inception of lease? Purchase option that Lessee is reasonably certain to exercise? No Title transfers to Lessee at any time during or at end of lease? No Lessor's implicit rate 12% Lessee's incremental borrowing rate 12% Does Lessee know Lessor's implicit rate? Remaining economic life of asset 5 yrs Economic life of asset when new 5 yrs Specialized use asset with no alternative use to Lessor at end of lease? no Nonlease components included in lease payment? Initial direct costs incurred by Lessor (assume recorded by Lessor in Misc. Expenses when incurred) $10,000 Initial direct costs incurred by Lessee (assume recorded by Lessor in Misc. Expenses when incurred) $12,000 Required 1. Prepare Lessor's and Lessee's entry to record the lease on January 20, 2020. Assume that the initial direct costs incurred by each were incurred on January 5, 2020 and were recorded in Miscellaneous Expenses on that date. yes no Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Entries by Lessee at inception of lease on 1/20/2020: Account Debit Credit 1 1 1 1 1 1 1 1 1 Entries by Lessor at inception of lease on 1/20/2020: Account Debit Credit N N N N 2 2 2. Redo Lessor's entry to book the lease on January 20, 2020 assuming that the Lessor's amortized cost of the asset is $400,000. Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Entries by Lessor at inception of lease on 1/20/2020: Account Debit Credit 3 3 3 ww 3 Column1 Accumulate depreciation (Bal. Sht) Cash (Bal. Sit) Deferred reht revenue (Bal. Sht) Equipment Bal. Sht) Lease payable (Bal. Sht) Lease receivable (Bal. Sht) Note payabile (Bal. Sht) Prepaid sen ice contract (Bal. Sht) Right-of-Use asset (Bal. Sht) Warehouse Bal. Sht) Amortization expense Inc. Stmt) Cost of goods sold (Inc. Stmt) Gain on sale of warehouse (Inc. Stmt) Interest expense (Inc. Stmt) Interest revenue (Inc. Stmt) Lease experse (Inc. Stmt) Lease revenue (Inc. Stmt) Misc. expenses (Inc. Stmt) Rent revenue (Inc. Stmt) Sales revenile (Inc. Stmt)
