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Sandhill Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement: 1.
Sandhill Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement: 1. 2. 3. 4. 5. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $863,828 are due on July 1 of each year. The fair value of the equipment on July 1, 2021 is $3,090,000. The equipment has an economic life of 6 years with no salvage value. Sandhill depreciates similar machinery it owns on the sum-of-the-years'-digits basis. The lessee pays all executory costs. Sandhill's incremental borrowing rate is 9% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments. Click here to view factor tables. (a) Indicate the type of lease Sandhill Company has entered into and what accounting treatment is applicable. Accounts Payable Accumulated Depreciation-Buildings Accumulated Depreciation-Capital Leases Accumulated Depreciation-Equipment Accumulated Depreciation-Machinery Amortization Expense Airplanes Buildings Cash Cost of Goods Sold Deferred Gross Profit Depreciation Expense Equipment Executory Costs Executory Costs Payable Gain on Disposal of Equipment Gain on Disposal of Machinery Gain on Sale of Buildings Insurance Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Leased Asset Leased Buildings Leased Equipment Lease Expense Leased Land Lease Liability Lease Receivable Lease Revenue Loss on Capital Lease Machinery Maintenance and Repairs Expense Prepaid Lease Executory Costs Property Tax Expense Property Tax Payable Rent Expense Rent Payable Rent Receivable Rent Revenue Revenue from Sale-Leaseback Right-of-Use Asset Salaries and Wages Expense Sales Revenue Selling Expenses Trucks Unearned Profit on Sale-Leaseback Unearned Service Revenue
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