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 $30,400, 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 $145,500, and the fair value is approximately $169,100. • 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 $30,400 discounted at 12% is $169,138.21 (the $1 purchase option is ignored as immaterial). Required: 1. Prepare all the journal entries for Ballieu for the years 2019 and 2020.
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 $30,400, 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 $145,500, and the fair value is approximately $169,100. • 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 $30,400 discounted at 12% is $169,138.21 (the $1 purchase option is ignored as immaterial). Required: 1. Prepare all the journal entries for Ballieu for the years 2019 and 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 1P: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases...
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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 $30,400, 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 $145,500, and the fair value is approximately $169,100. |
| • | 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 $30,400 discounted at 12% is $169,138.21 (the $1 purchase option is ignored as immaterial).
Required:
1. Prepare all the journal entries for Ballieu for the years 2019 and 2020.
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