Question
The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. The lessee assumes responsibility for all executory
The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee.
The lessee assumes responsibility for all executory costs, which are expected to amount to $5,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $50,000. The lessee uses the straight-line depreciation method for all equipment.
(a) Prepare an amortization schedule that would be suitable for the lessee for the lease term.
(b) Prepare all of the journal entries for the lessee for 2014 and 2015 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessees annual accounting period ends on December 31 and reversing entries are used when appropriate.
Inception date Annual lease payment due at the beginning of January 1, 2014 each year, beginning with January 1, 2014 Residual value of equipment at end of lease term $124,798 guaranteed by the lessee Lease termm Economic life of leased equipment Fair value of asset at January 1, 2014 Lessor's implicit rate $50,000 6 years 6 years $600,000 12% 12% Lessee's incremental borrowing rate
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