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Q1. On January 1, 2021, Bahrain Company signed a 4-year lease for a car. The terms of the lease called for Bahrain Company to make
Q1.
On January 1, 2021, Bahrain Company signed a 4-year lease for a car. The terms of the lease called for Bahrain Company to make annual payments of $2,000 at the beginning of each year, starting January 1, 2021. The car has a book value of 10,000 (the FMV at the leasing date was $8,000) an estimated useful life of 5 years and a $1,000 unguaranteed residual value. Bahrain Company uses the straight-line method of depreciation for all of its plant (fixed) assets. Bahrain Companys incremental borrowing rate is 2%.
Instructions
- What type of lease is this? Explain. (5-points).
- If present value of the minimum lease payments is $7,768;
- Prepare the Lease Amortization Schedule, (10-points).
- Prepare the journal entries on January 1, 2021. (5-points).
- Prepare all journal entries through Dec. 31, 2021 and January 1, 2022. (10-points).
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