Question
Recording Entries for Finance Lease: Lessee Lessory Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with LesseeX Corp. Title to the
Recording Entries for Finance Lease: Lessee
Lessory Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with LesseeX Corp. Title to the asset remains with Lessory Corp upon lease expiration. LesseeX Corp does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease.
Lease term | 5 years |
Economic life of the leased equipment | 6 years |
Annual lease payments | $1,098 |
Payment date | Annually on January 1 |
Fair value of the leased equipment | $5,200 |
Lessory Corps carrying value of the leased equipment | $4,500 |
Rate implicit in the lease (known by lessee) | 6.02% |
Estimated fair value of the equipment at the end of the lease term | $400 |
a. Determine the classification of the lease to LesseeX Corporation. |
Finance, Operating, or Sales-type Lease
b. Prepare an amortization schedule of the lease liability
Date | Lease Payment | Interest on Liability | Reduction of Lease Liability | Lease Liability | |
---|---|---|---|---|---|
Jan. 2, 2020 | |||||
Jan. 2, 2020 | |||||
Jan. 2, 2021 | |||||
Jan. 2, 2022 | |||||
Jan. 2, 2023 | |||||
Jan. 2, 2024 | |||||
Jan. 2, 2025 | |||||
Jan. 2, 2026 | |||||
Jan. 2, 2027 | |||||
Total |
c. Provide all journal entries relating to the lease for LesseeX Corporation for 2020 and 2021.
Date | Account Name | Debit | Credit |
---|---|---|---|
Jan. 1, 2020 | |||
To record asset and liability related to lease |
Date | Account Name | Debit | Credit |
---|---|---|---|
Jan. 1, 2020 | |||
To record lease payment |
Date | Account Name | Debit | Credit |
---|---|---|---|
Dec. 31, 2020 | |||
To record interest |
Date | Account Name | Debit | Credit |
---|---|---|---|
Dec. 31, 2020 | |||
To record amortization |
Date | Account Name | Debit | Credit |
---|---|---|---|
Jan. 1, 2021 | |||
To record lease payment |
Date | Account Name | Debit | Credit |
---|---|---|---|
Dec. 31, 2021 | |||
To record interest |
Date | Account Name | Debit | Credit |
---|---|---|---|
Dec. 31, 2021 | |||
To record amortization |
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