24.Larkspur, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000 from United Corporation. The agreement stipulates the following.● Rental payments of $4,954 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease.● Larkspur must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $700, though these costs vary from year to year.● Larkspur must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse.● Larkspur paid legal fees of $1,000 in executing the lease.Assuming Larkspur’s incremental borrowing rate is 12% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Larkspur. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)Click here to view factor tables.Account Titles and ExplanationDebitCredit

given Rental payments of $4,954 are to be made at the start of each year of the 5-year…

Answered: Larkspur, Inc. has entered an agreement…

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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24.

Larkspur, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000 from United Corporation. The agreement stipulates the following.

●		Rental payments of $4,954 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease.
●		Larkspur must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $700, though these costs vary from year to year.
●		Larkspur must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse.
●		Larkspur paid legal fees of $1,000 in executing the lease.

Assuming Larkspur’s incremental borrowing rate is 12% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Larkspur. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)

Click here to view factor tables.

Account Titles and Explanation	Debit	Credit

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