Question
Sandhill Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. The lease term is
Sandhill Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement.
1. | The lease term is 4 years, with equal annual rental payments of $4,499 at the beginning of each year. | |
2. | Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. | |
3. | The building has a fair value of $17,800, a book value to Sandhill of $10,800, and a useful life of 5 years. | |
4. | At the end of the lease term, Sandhill and Walsh expect there to be an unguaranteed residual value of $2,700. | |
5. | Sandhill wants to earn a return of 9% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. |
Using the original facts of the lease, show the journal entries to be made by both Sandhill and Walsh in 202
Sandhill Journal Entries
Date | Account Titles and Explanation | Debit | Credit | |
| ||||
(To record the lease) | ||||
1/1/2012/31/20 | ||||
(To record lease payment) | ||||
1/1/2012/31/20 | ||||
Walshs Journal Entries
Date | Account Titles and Explanation | Debit | Credit |
1/1/2012/31/20 | |||
(To record the lease) | |||
1/1/2012/31/20 | |||
(To record lease payment) | |||
1/1/2012/31/20 | |||
(To record interest expense) | |||
1/1/2012/31/20 | |||
(To record amortization of the right-of-use asset) |
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