The following facts pertain to a non-cancelable lease agreement betweenMooneyLeasing Company andRodeCompany, a lessee.

Commencement dateMay 1, 2020Annual lease payment due at the beginning ofeach year, beginning with May 1, 2020$20,471.94Bargain purchase option price at end of lease term$4,000Lease term5yearsEconomic life of leased equipment10yearsLessor's cost$65,000Fair value of asset at May 1, 2020$91,000Lessor's implicit rate8%Lessee's incremental borrowing rate8%

The collectibility of the lease payments byMooneyis probable.

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(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

(a)

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Your answer is correct.

Discuss the nature of this lease toRode.

The nature of this lease toRodeis a

operating

finance

sales-type

lease.

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(b)

• Your Answer
• Correct Answer

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Your answer is correct.

Discuss the nature of this lease toMooney.

The nature of this lease toMooneyis a

sales-type

operating

finance

lease.

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(c)

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Your answer is correct.

Prepare a lease amortization schedule forRodefor the 5-year lease term.(Round answers to 2 decimal places, e.g. 5,275.15.)

RODECOMPANY (Lessee)

Lease Amortization Schedule

Date

Annual Lease Payment Plus

BPO

Interest on

Liability

Reduction of Lease

Liability

Lease Liability

5/1/20$

$

$

$

5/1/20

5/1/21

5/1/22

5/1/23

5/1/24

4/30/25

$

$

$

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(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 byRode.(Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

(To record the lease)

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

(To record the first lease payment)

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

(To record interest expense)

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

(To record amortization of the right-of-use asset)

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

(To record interest expense)

5/1/20

12/31/20

1/1/21

5/1/21

12/31/21

(To record amortization of the right-of-use asset)

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