Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Use the information for Bulls, Inc. from BE21.31. Assume that the lease receivable is $30,000, deferred gross profit is $3,000, and the rate of return
Use the information for Bulls, Inc. from BE21.31. Assume that the lease receivable is $30,000, deferred gross profit is $3,000, and the rate of return to amortize the net lease receivable to zero is 7.11%. Prepare Bulls' journal entry at the end of the first year of the lease to record the receipt of the first lease payment.
E21.1 (LO 1, 4) (Lessee Entries; Finance Lease with No Residual Value) DU Journeys enters into an agreement with Traveler Inc. to lease a car on December 31, 2019. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it is expected to have no residual value at the end of the lease term. 2. The fair value of the car was $15,000 at commencement of the lease. 3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2020. The first payment is to be of an amount of $5,552.82, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,830.46 and the third and final payment will be $6,121.98). 4. DU Journeys' incremental borrowing rate is 8%. The rate implicit in the lease is unknown. 5. DU Journeys uses straight-line depreciation for all similar cars. Instructions a. Prepare DU Journeys' journal entries for 2019, 2020, and 2021. b. Assume, instead of a constant rate of increase, the annual lease payments will increase according to the Consumer Price Index (CPI). At its current level, the CPI stipulates that the first rental payment should be $5,820. What would be the impact on the journal entries made by DU Journeys at commencement of the lease, as well as for subsequent yearsStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started