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Wildhorse Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. 2. 3. The lease
Wildhorse Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement. 1. 2. 3. The lease term is 6 years, with equal annual rental payments of $3,433 at the beginning of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The building has a fair value of $18,500, a book value to Wildhorse of $11,500, and a useful life of 7 years. At the end of the lease term, Wildhorse and Walsh expect there to be an unguaranteed residual value of $2,875. Wildhorse wants to earn a return of 9% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. 4. 5. Click here to view factor tables. (b) Using the original facts of the lease, show the journal entries to be made by both Wildhorse and Walsh in 2020. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Wildhorse Journal Entries Date Account Titles and Explanation Debit Credit x 1/1/20 Lease Receivable 18500 Cost of Goods Sold Sales Revenue =X Inventory Date Account Titles and Explanation Debit Credit 1/1/20 Right-of-Use Asset Lease Liability (To record the lease) 1/1/20 Lease Liability Cash (To record lease payment) X 12/31/20 Interest Expense Lease Liability (To record interest expense) 12/31/20 Depreciation Expense Right-of-Use Asset (To record amortization of the right-of-use asset)
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