Question
The following facts pertain to a non-cancelable lease agreement between Ivanhoe Leasing Company and Metlock Company, a lessee. Commencement date May 1, 2020 Annual lease
The following facts pertain to a non-cancelable lease agreement between Ivanhoe Leasing Company and Metlock Company, a lessee.
Commencement date | May 1, 2020 | ||
Annual lease payment due at the beginning of | |||
each year, beginning with May 1, 2020 | $18,922.70 | ||
Bargain purchase option price at end of lease term | $5,000 | ||
Lease term | 5 | years | |
Economic life of leased equipment | 10 | years | |
Lessors cost | $65,000 | ||
Fair value of asset at May 1, 2020 | $85,000 | ||
Lessors implicit rate | 8 | % | |
Lessees incremental borrowing rate | 8 | % |
The collectibility of the lease payments by Ivanhoe is probable.
(a). Prepare a lease amortization schedule for Metlock for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)
(b). Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Metlocks annual accounting period ends on December 31. Reversing entries are used by Metlock.
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