Cullumber Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years, with equal annual rental payments of $5,300 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for $3,000, which Cullumber is reasonably certain it will exercise as it believes the fair value of the machinery will be at least $4,000. The machinery has a useful life of 10 years and a fair value of $35,000. The implicit rate of the lease is not known to Cullumber. Cullumber’s incremental borrowing rate is 7%. Prepare Cullumber's 2020 journal entries: 1) To record lease liability 2) To record lease payment 3) To record interest expense
Cullumber Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years, with equal annual rental payments of $5,300 at the beginning of each year. In addition, the lease provides an option to purchase the machinery at the end of the lease term for $3,000, which Cullumber is reasonably certain it will exercise as it believes the fair value of the machinery will be at least $4,000. The machinery has a useful life of 10 years and a fair value of $35,000. The implicit rate of the lease is not known to Cullumber. Cullumber’s incremental borrowing rate is 7%.
Prepare Cullumber's 2020
1) To record lease liability
2) To record lease payment
3) To record interest expense
4) To record amortization of the right of use asset.
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