Using the New Lease Method
Wildhorse Incorporated leases a piece of machinery to Swifty Company on January 1, 2020, under the following terms. 1. The lease is to be for 4 years with rental payments of $14,162 to be made at the beginning of each year. 2. The machinery' has a fair value of $74,510, a book value of $55,600, and an economic life of 10 years. At the end of the lease term, both parties expect the machinery to have a residual value of $27,800. To protect against a large loss, Wildhorse requests Swifty to guarantee $19,600 of the residual value, which Irving agrees to do. The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature. 5. The implicit rate is 5%, which is known by Swifty. 6. Collectibility of the payments is probable. Click here to view factor tables. Evaluate the criteria for classification of the lease, and describe the nature of the lease. For the lessee, it is a And for the lessor, it is a e Textbook and sales-type lease finance lease operating lease List of Accounts Prepare the journal entries for Swifty for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.) Debit Credit Date Account Titles and Explanation Jan. 1 (To record lease) Jan. 1 (To records first lease payment) Dec. 31 (To record accrued interest) Dec. 31 (To record amortization expense) Prepare the journal entries for Wildhorse for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.) Debit Credit Date Account Titles and Explanation Jan. 1 (To record lease) Jan. 1 (To record first lease payment) Dec. 31 (To record lease revenue) e Textbook and Media Suppose Swifty did not guarantee any amount of the expected residual value. Prepare the journal entries for Swifty for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.) Debit Credit Date Account Titles and Explanation Jan. 1 (To record lease) Jan. 1 (To record first lease payment) Dec. 31 (To record interest and amortization) e Textbook and Media Suppose Swifty did not guarantee any amount of the expected residual value. Prepare the journal entries for Wildhorse for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 5,275.) Debit Credit Date Account Titles and Explanation Jan. 1 (To record lease payments) Dec. 31 (To record lease revenue) Dec. 31 (To record depreciation) e Textbook and Media
