How would I record the necessary journal entries using this information? - It is an operating lease. - On November 1, 2019 (the beginning of the fiscal year), CAP acquired a of its equipment through a lease agreement with Lessor Corp. The lease contract has the following terms and conditions: - CAP agrees to lease equipment from Lessor Corp. with a fair market value of $900,000 - The term of the lease is for seven years, with annual rental payments of $145,000 due at the beginning of each year. CAP knows the implicit interest rate on the lease agreement is 5%. CAP knows that it could borrow at an incremental rate of 6%. - There is no residual value. - CAP will cover the executory costs associated with the lease. The executor costs will be approximately $10,000 per annum and are included as part of the $145,000 rental payment. - The lease offers a bargain purchase option to purchase the equipment for $50,000 at the end of the seventh year. At the end of year seven, the fair market value of the asset is expected to be $70,000. - The first payment was made on November 1, 2019, with annual payments thereafter
How would I record the necessary
- It is an operating lease.
- On November 1, 2019 (the beginning of the fiscal year), CAP acquired a of its equipment through a lease agreement with Lessor Corp. The lease contract has the following terms and conditions:
- CAP agrees to lease equipment from Lessor Corp. with a fair market value of $900,000
- The term of the lease is for seven years, with annual rental payments of $145,000 due at the beginning of each year. CAP knows the implicit interest rate on the lease agreement is 5%. CAP knows that it could borrow at an incremental rate of 6%.
- There is no residual value.
- CAP will cover the executory costs associated with the lease. The executor costs will be approximately $10,000 per annum and are included as part of the $145,000 rental payment.
- The lease offers a bargain purchase option to purchase the equipment for $50,000 at the end of the seventh year. At the end of year seven, the fair market value of the asset is expected to be $70,000.
- The first payment was made on November 1, 2019, with annual payments thereafter
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