a. What type of lease is this? Explain b. Record the journal entries in the book of lessee. c. Record the journal entries in the book of lessor.

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 3E: Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides...
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3. Lessee Capital Lease; Lessor
Residual Value - Guaranteed
-
Instructions:
Direct Financing Lease;
On January 1, 2010, Velde Company (lessee) entered into a 4
year, noncancellable contract to lease a computer from
Exceptional Computer Company (lessor). Annual rentals of
$16,228 are to be paid each January 1, Velde will assume
responsibility for all normal ownership costs, and at the end of
the lease period the computer will be returned back to
Exceptional Computer Company. The cost of the computer to
Exceptional Computer Company was $60,000 and it had an
estimated useful life of four years and a guaranteed residual
value of $5,000. Velde has an incremental borrowing rate of
12%, but has knowledge that Exceptional Computer Company
used a rate 10% in setting annual rentals. Collection of the
rentals is reasonably predictable and there are no important
uncertainties regarding future unreimbursable costs to be
incurred by the lessor. PVIFAD(10%,4) - 3.48685; PVIF(10%,4)
- 0.68301
a. What type of lease is this? Explain
b. Record the journal entries in the book of lessee.
c. Record the journal entries in the book of lessor.
Transcribed Image Text:3. Lessee Capital Lease; Lessor Residual Value - Guaranteed - Instructions: Direct Financing Lease; On January 1, 2010, Velde Company (lessee) entered into a 4 year, noncancellable contract to lease a computer from Exceptional Computer Company (lessor). Annual rentals of $16,228 are to be paid each January 1, Velde will assume responsibility for all normal ownership costs, and at the end of the lease period the computer will be returned back to Exceptional Computer Company. The cost of the computer to Exceptional Computer Company was $60,000 and it had an estimated useful life of four years and a guaranteed residual value of $5,000. Velde has an incremental borrowing rate of 12%, but has knowledge that Exceptional Computer Company used a rate 10% in setting annual rentals. Collection of the rentals is reasonably predictable and there are no important uncertainties regarding future unreimbursable costs to be incurred by the lessor. PVIFAD(10%,4) - 3.48685; PVIF(10%,4) - 0.68301 a. What type of lease is this? Explain b. Record the journal entries in the book of lessee. c. Record the journal entries in the book of lessor.
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