On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $26,000 due on December 31 of each year, calculated by the lessor using a 7% discount rate. • The expected useful life of the asset is nine years, and its fair value is $195,000. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." . The relevant interest rate at that time was 8%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar. View transaction list i Date View journal entry worksheet No 1 January 01, 2026 Right-of-use asset Lease payable ow Transcribed Text. General Journal Debit Credit
On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for three years. • Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual lease payments are $26,000 due on December 31 of each year, calculated by the lessor using a 7% discount rate. • The expected useful life of the asset is nine years, and its fair value is $195,000. • Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was "reasonably certain." . The relevant interest rate at that time was 8%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. 2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the reassessment. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the reassessment. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar. View transaction list i Date View journal entry worksheet No 1 January 01, 2026 Right-of-use asset Lease payable ow Transcribed Text. General Journal Debit Credit
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 7MC: Using the information provided, what transaction represents the best application of the present...
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Transcribed Image Text:On January 1, 2024, Rick's Pawn Shop leased a truck from Corey Motors for a six-year period with an option to extend the lease for
three years.
• Rick's had no significant economic incentive as of the beginning of the lease to exercise the three-year extension option. Annual
lease payments are $26,000 due on December 31 of each year, calculated by the lessor using a 7% discount rate.
• The expected useful life of the asset is nine years, and its fair value is $195,000.
• Assume that at the beginning of the third year, January 1, 2026, Rick's had made significant improvements to the truck whose
cost could be recovered only if it exercises the extension option, creating an expectation that extension of the lease was
"reasonably certain."
. The relevant interest rate at that time was 8%.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Required:
1. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the
reassessment.
2. Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessor to account for the
reassessment.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Prepare the journal entry, if any, on January 1 and on December 31 of the third year, 2026 for the lessee to account for the
reassessment.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate
and final answers to nearest whole dollar.
View transaction list
i
View journal entry worksheet
No
Date
1 January 01, 2026 Right-of-use asset
Lease payable
how Transcribed Text
Journal entry worksheet
1 2
General Journal
Note: Enter debits before credits.
Record the entry by the lessor to account for the reassessment.
Date
January 01, 2026
Debit
General Journal
Credit
Debit Credit
>
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