Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2020. The following information relates to the lease agreement.1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.2. The cost of the machinery is $517,000, and the fair value of the asset on January 1, 2020, is $657,000.3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock estimates that the expected residual value at the end of the lease term will be 55,000. Shamrock amortizes all of its leased equipment on a straight-line basis.4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020.5. The collectibility of the lease payments is probable.6. Ivanhoe desires a 10% rate of return on its investments. Shamrock’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown. (To record lease payment.)>> Prepare the journal entries Ivanhoe would make in 2020 and 2021 related to the lease arrangement. (Credit account titles areautomatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles andenter O for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.)DateAccount Titles and ExplanationDebitCredit(To record the lease.)

Given than : Lease term =7 yearsEconomic life =9 years Fair value =$ 657,000Guaranteed residual…

Answered: Ivanhoe Leasing Company agrees to lease…

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

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

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Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $517,000, and the fair value of the asset on January 1, 2020, is $657,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Shamrock estimates that the expected residual value at the end of the lease term will be 55,000. Shamrock amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Ivanhoe desires a 10% rate of return on its investments. Shamrock’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown.

Prepare the journal entries Ivanhoe would make in 2020 and 2021 related to the lease arrangement. (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 O for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
(To record the lease.)

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