Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:1.The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year.2.The cost of the equipment is $400,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time.3.The equipment has a fair value of $400,000.4.Ten-Care agrees to pay all executory costs directly to a third party.5.The lease contains no renewal or bargain purchase option.6.The interest rate implicit in the lease is 12%.7.The initial direct costs are insignificant and assumed to be zero.8.It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee.Prepare journal entries for Rexon for the years 2019 and 2020.

Year PV factor @ 12% Remarks 1 0.89286 = 1 / 1.12 2 0.79719…

Answered: Rexon Company leases non-specialized…

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 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...

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Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1.	The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year.
2.	The cost of the equipment is $400,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time.
3.	The equipment has a fair value of $400,000.
4.	Ten-Care agrees to pay all executory costs directly to a third party.
5.	The lease contains no renewal or bargain purchase option.
6.	The interest rate implicit in the lease is 12%.
7.	The initial direct costs are insignificant and assumed to be zero.
8.	It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Prepare journal entries for Rexon for the years 2019 and 2020.

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