7...... Sage Industries and Pronghorn Inc. enter into an agreement that requires Pronghorn Inc. to build three diesel-electric engines to Sage’s specifications. Upon completion of the engines, Sage has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $405,443 each January 1, starting January 1, 2020. Sage’s incremental borrowing rate is 8%. The implicit interest rate used by Pronghorn and known to Sage is 7%. The total cost of building the three engines is $2,685,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sage depreciates similar equipment on a straight-line basis. At the end of the lease, Sage assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables. (a) Your answer has been saved. See score details after the due date. Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. The lease should be treated as a by Sage Industries. The lease should be treated as a by Pronghorn Inc. Attempts: 1 of 1 used (b), (c) and (d) Your answer has been saved. See score details after the due date. (b) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Sage (the lessee). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 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. 58,971.) Account Titles and Explanation Debit Credit (c) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Pronghorn (the lessor). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Lessee (January 1, 2020) Lessor (January 1, 2020) Debit Credit Attempts: 1 of 1 used (e1) Your answer has been saved. See score details after the due date. Prepare a lease amortization schedule for 2 years. (Round answers to 0 decimal places e.g. 58,971.) SAGE INDUSTRIES/PRONGHORN INCORPORATED Lease Amortization Schedule Date Annual Lease Receipt/Payment Interest on Receivable/Liability Reduction in Receivable/Liability Lease Receivable/ Liability 1/1/20 $ $ $ $ 1/1/20 1/1/21 1/1/22 Attempts: 1 of 1 used (e2) Your answer has been saved. See score details after the due date. Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (g) Assume that Sage incurs legal fees related to the execution of the lease of $30,000. In addition, assume Sage receives a lease incentive from Pronghorn of $50,000 to enter the lease. How will this affect your answer to part b? Account Titles and Explanation Debit Credit

7...... Sage Industries and Pronghorn Inc. enter into an agreement that requires Pronghorn Inc. to build three diesel-electric engines to Sage’s specifications. Upon completion of the engines, Sage has agreed to lease them for a period of 10 years and to assume all costs and risks of ownership. The lease is non-cancelable, becomes effective on January 1, 2020, and requires annual rental payments of $405,443 each January 1, starting January 1, 2020. Sage’s incremental borrowing rate is 8%. The implicit interest rate used by Pronghorn and known to Sage is 7%. The total cost of building the three engines is $2,685,000. The economic life of the engines is estimated to be 10 years, with residual value set at zero. Sage depreciates similar equipment on a straight-line basis. At the end of the lease, Sage assumes title to the engines. Collectibility of the lease payments is probable. Click here to view factor tables. (a) Your answer has been saved. See score details after the due date. Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor. The lease should be treated as a by Sage Industries. The lease should be treated as a by Pronghorn Inc. Attempts: 1 of 1 used (b), (c) and (d) Your answer has been saved. See score details after the due date. (b) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Sage (the lessee). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 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. 58,971.) Account Titles and Explanation Debit Credit (c) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Pronghorn (the lessor). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.) Account Titles and Explanation Debit Credit (d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Lessee (January 1, 2020) Lessor (January 1, 2020) Debit Credit Attempts: 1 of 1 used (e1) Your answer has been saved. See score details after the due date. Prepare a lease amortization schedule for 2 years. (Round answers to 0 decimal places e.g. 58,971.) SAGE INDUSTRIES/PRONGHORN INCORPORATED Lease Amortization Schedule Date Annual Lease Receipt/Payment Interest on Receivable/Liability Reduction in Receivable/Liability Lease Receivable/ Liability 1/1/20 $ $ $ $ 1/1/20 1/1/21 1/1/22 Attempts: 1 of 1 used (e2) Your answer has been saved. See score details after the due date. Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) (g) Assume that Sage incurs legal fees related to the execution of the lease of $30,000. In addition, assume Sage receives a lease incentive from Pronghorn of $50,000 to enter the lease. How will this affect your answer to part b? Account Titles and Explanation Debit Credit

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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(a)

Your answer has been saved. See score details after the due date.

Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor.

The lease should be treated as a by Sage Industries.

The lease should be treated as a by Pronghorn Inc.

Attempts: 1 of 1 used

(b), (c) and (d)

Your answer has been saved. See score details after the due date.

(b) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Sage (the lessee). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 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. 58,971.)

Account Titles and Explanation	Debit	Credit

(c) Prepare the journal entry to record the transaction on January 1, 2020, on the books of Pronghorn (the lessor). (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.)

Account Titles and Explanation	Debit	Credit

(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
Lessee (January 1, 2020)


Lessor (January 1, 2020)	Debit	Credit

Attempts: 1 of 1 used

(e1)

Your answer has been saved. See score details after the due date.

Prepare a lease amortization schedule for 2 years. (Round answers to 0 decimal places e.g. 58,971.)

SAGE INDUSTRIES/PRONGHORN INCORPORATED Lease Amortization Schedule
Date	Annual Lease Receipt/Payment	Interest on Receivable/Liability	Reduction in Receivable/Liability	Lease Receivable/ Liability
1/1/20	$	$	$	$
1/1/20
1/1/21
1/1/22

Attempts: 1 of 1 used

(e2)

Your answer has been saved. See score details after the due date.

Prepare the journal entries for both the lessee and lessor to record any entries needed in connection with the lease at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(g)

Assume that Sage incurs legal fees related to the execution of the lease of $30,000. In addition, assume Sage receives a lease incentive from Pronghorn of $50,000 to enter the lease. How will this affect your answer to part b?

Account Titles and Explanation	Debit	Credit

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