On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions:•The lease is noncancelable and has a term of 8 years.•The annual rentals are $28,900, payable at the beginning of each year.•The interest rate implicit in the lease is 12%.•Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026.•The cost of the equipment to the lessor is $144,000, and the fair value is approximately $160,800.•Ballieu incurs no material initial direct costs.•It is probable that Ballieu will collect the lease payments.•Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $28,900 discounted at 12% is $160,792.58 (the $1 purchase option is ignored as immaterial).Required: Prepare all the journal entries for Ballieu for the years 2019 and 2020.

In this case I see the risk and all other thing is transfered to the other person and Financial…

Answered: On January 1, 2019, Ballieu Company…

Practical Management Science

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ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

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On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions:

•	The lease is noncancelable and has a term of 8 years.
•	The annual rentals are $28,900, payable at the beginning of each year.
•	The interest rate implicit in the lease is 12%.
•	Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2026.
•	The cost of the equipment to the lessor is $144,000, and the fair value is approximately $160,800.
•	Ballieu incurs no material initial direct costs.
•	It is probable that Ballieu will collect the lease payments.
•	Ballieu estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.

Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of $28,900 discounted at 12% is $160,792.58 (the $1 purchase option is ignored as immaterial).

Required:

Prepare all the journal entries for Ballieu for the years 2019 and 2020.

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