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Pronghorn Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments of $1,220 at the beginning
Pronghorn Corporation leased equipment to Larkspur, Inc. on January 1, 2025. The lease agreement called for annual rental payments of $1,220 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $11,700, a book value of $9,700, and Pronghorn expects a residual value of $9,200 at the end of the lease term. Pronghorn set the lease payments with the intent of earning a 4% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your answer has been saved. See score details after the due date. Determine the nature of the lease to both Pronghorn and Larkspur. The lease is a/an operating lease to Larkspur. The lease is a/an operating lease to Pronghorn. List of Accounts Attempts: 1 of 1 used (b) Prepare all necessary journal entries for Larkspur in 2025. Larkspur uses straight-line depreciation. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation 1/1/25 1/1/25 Right-of-Use Asset Lease Liability (To record the lease) Lease Liability Cash (To record lease payment) 12/31/25= Lease Expense Lease Liability Right-of-Use Asset Debit Credit
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