Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego $25,000, and will have no residual value when the lease term ends. The fair value of the equipment is $30,000. La Jolla agrees to pay all executory costs ($500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight-line method.
Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego $25,000, and will have no residual value when the lease term ends. The fair value of the equipment is $30,000. La Jolla agrees to pay all executory costs ($500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight-line method.
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 13E: Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with...
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Question
Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego $25,000, and will have no residual value when the lease term ends. The fair value of the equipment is $30,000. La Jolla agrees to pay all executory costs ($500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019.
Required:
| 1. | Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. |
| 2. | Next Level On the assumption that both companies adjust and close books each December 31, prepare |
| CHART OF ACCOUNTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diego Leasing Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General Ledger | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Chart of Accounts —Lessee
| CHART OF ACCOUNTS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| La Jolla Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General Ledger | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party.
Additional Instructions
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Summary Table
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La Jolla Company (Lessee)
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Date
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Lease Payment Required
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Interest at 14% on Unpaid Obligation
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Balance of Lease Liability
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Diego Company
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Date
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Lease Rental Collected
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Interest at 14% on Lease Receivable
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Lease Receivable
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January 1, 2019
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January 1, 2019
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December 31, 2019
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January 1, 2020
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January 1, 2021
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December 31, 2021
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December 31, 2022
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January 1, 2023
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2a. On the assumption that Diego Leasing Company adjust and close books each December 31, prepare journal entries relating to the lease for the company through December 31, 2020, based on data derived in the table.
Prepare journal entries for Diego Leasing Company, Lessor, for 2019.
General Journal Instructions
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GENERAL JOURNAL
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Prepare journal entries for Diego Leasing Company, Lessor, for 2020.
PAGE 1
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General Journal-Lessee
2c. On the assumption that La Jolla Company adjust and close books each December 31, prepare journal entries relating to the lease for the company through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight-line method.
Prepare journal entries for La Jolla Company, Lessee, for 2019.
General Journal Instructions
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GENERAL JOURNAL
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Prepare journal entries for La Jolla Company, Lessee, for 2020.
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