Question
The following facts pertain to a non-cancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee. Commencement Date: May 1, 2020 Annual Lease
The following facts pertain to a non-cancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee.
Commencement Date: May 1, 2020
Annual Lease Payment due at Beginning of each year (Beginning with May 1, 2020): $20,471.94
Bargain Purchase Option Price at end of lease term: $4,000
Lease Term: 5 Years
Economic Life of Leased Equipment: 10 Years
Lessor's Cost: $65,000
Fair Value of Asset at May 1, 2020: $91,000
Lessor's Implicit Rate: 8%
Lessee's Incremental Borrowing Rate: 8%
The collectability of the lease payments by Mooney is probable.
A) Discuss the nature of this lease to Rode.
B) Discuss the nature of this lease to Mooney.
C) Prepare a lease amortization schedule for Rode for the 5-year Lease Term.
D) Prepare the journal entries on the lessee's 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. Rode's annual accounting period ends on December 31. Reversing Entries are used by Rode.
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