Question
Recording Finance Lease Journal Entries Purchase Option Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1, 2020.
Recording Finance Lease Journal Entries Purchase Option
Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Company on January 1, 2020. Lessee has agreed to pay $61,600 annually beginning immediately on January 1, 2020. The lease includes an option for the lessee to purchase the equipment at $6,600, which is $4,400 below the estimated fair value at lease end. Lessee Company is reasonably certain that it will exercise the purchase option. The economic life of the asset is 7 years. The lessees incremental borrowing rate is 7% and the lessors implicit rate is not readily determinable by the lessee. Record Lessee Companys journal entries on (a) January 1, 2020, and (b) December 31, 2020, assuming that the lease is properly classified as a finance lease.
Note: Round your final answers to the nearest whole dollar.
| Date | Account Name | Dr. | Cr. | |
|---|---|---|---|---|
| a. | Jan. 1, 2020 | |||
| To record asset and liability | ||||
| Jan. 1, 2020 | ||||
| To record cash lease payment | ||||
| b. | Dec. 31, 2020 | |||
| To record interest | ||||
| Dec. 31, 2020 | ||||
| To record amortization |
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