Jensen Corporation leased industrial equipment to Francis Manufacturing on January 1, 2019. The following facts pertain to the lease: The lease term is 4 years. The annual lease payment is due at the beginning of each year starting on January 1, 2019. Each annual lease payment is $269,282 Ownership does not transfer at the end of the lease term and there is no bargain purchase option. The asset is not of a specialized nature. The industrial equipment has a fair value of $1,000,000, a book value to Jensen Corporation of $900,000, and a useful life of 5 years. Francis Manufacturing depreciates similar equipment using the straight-line method. The lease contains a guaranteed residual value of $50,000. The expected residual value is greater than $50,000. Jensen Corporation wants to earn a return of 8% on the lease, and collectability of the payments is probable. This rate is known by Francis Manufacturing. Francis Manufacturing’s incremental borrowing rate is 6%. Prepare the journal entries required for Francis Manufacturing (Lessee) on January 1, 2019; December 31, 2019; and January 1, 2020
Jensen Corporation leased industrial equipment to Francis Manufacturing on January 1, 2019. The following facts pertain to the lease: The lease term is 4 years. The annual lease payment is due at the beginning of each year starting on January 1, 2019. Each annual lease payment is $269,282 Ownership does not transfer at the end of the lease term and there is no bargain purchase option. The asset is not of a specialized nature. The industrial equipment has a fair value of $1,000,000, a book value to Jensen Corporation of $900,000, and a useful life of 5 years. Francis Manufacturing depreciates similar equipment using the straight-line method. The lease contains a guaranteed residual value of $50,000. The expected residual value is greater than $50,000. Jensen Corporation wants to earn a return of 8% on the lease, and collectability of the payments is probable. This rate is known by Francis Manufacturing. Francis Manufacturing’s incremental borrowing rate is 6%. Prepare the journal entries required for Francis Manufacturing (Lessee) on January 1, 2019; December 31, 2019; and January 1, 2020
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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Question
Jensen Corporation leased industrial equipment to Francis Manufacturing on January 1, 2019. The following facts pertain to the lease:
- The lease term is 4 years.
- The annual lease payment is due at the beginning of each year starting on January 1, 2019. Each annual lease payment is $269,282
- Ownership does not transfer at the end of the lease term and there is no bargain purchase option.
- The asset is not of a specialized nature.
- The industrial equipment has a fair value of $1,000,000, a book value to Jensen Corporation of $900,000, and a useful life of 5 years. Francis Manufacturing
depreciates similar equipment using the straight-line method. - The lease contains a guaranteed residual value of $50,000. The expected residual value is greater than $50,000.
- Jensen Corporation wants to earn a return of 8% on the lease, and collectability of the payments is probable. This rate is known by Francis Manufacturing.
- Francis Manufacturing’s incremental borrowing rate is 6%.
- Prepare the
journal entries required for Francis Manufacturing (Lessee) on January 1, 2019; December 31, 2019; and January 1, 2020
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