The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pharoah Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $116,406 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value of equipment at end of lease term $50,000 $45,000 6 years 6 years S642,000 Lease term Economic life of leased equipment Fair value of asset at January 1, Lessor's implicit rate Lessee's incremental borrowing rate 6 % 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answers to O decimal places eg. 5,275.)

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Chapter10: Long-term Liabilities
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Problem 10.5P
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The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pharoah Company, a lessee.
Commencement date
January 1,
Annual lease payment due at the beginning of
each year, beginning with January 1,
$116,406
Residual value of equipment at end of lease term,
guaranteed by the lessee
$5000
Expected residual value of equipment at end of lease term
$45,000
6 years
6 years
Lease term
Economic life of leased equipment
Fair value of asset at January 1,
$642,000
Lessor's implicit rate
6 %
Lessee's incremental borrowing rate
6 %
The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased
equipment.
Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations
to 5 decimal places, eg 1.25124 and the final answers to O decimal places eg. 5,275.)
PHAROAH COMPANY (Lessee)
Lease Amortization Schedule
Annual Lease
Payment Plus GRV
Interest on
Liability
Reduction of Lease
Liability
Lease Liability
Transcribed Image Text:The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pharoah Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $116,406 Residual value of equipment at end of lease term, guaranteed by the lessee $5000 Expected residual value of equipment at end of lease term $45,000 6 years 6 years Lease term Economic life of leased equipment Fair value of asset at January 1, $642,000 Lessor's implicit rate 6 % Lessee's incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, eg 1.25124 and the final answers to O decimal places eg. 5,275.) PHAROAH COMPANY (Lessee) Lease Amortization Schedule Annual Lease Payment Plus GRV Interest on Liability Reduction of Lease Liability Lease Liability
Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses
related to this lease. Assume the lessee's annual accounting period ends on December 31 (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for
the amounts. Round answers to O decimal places eg. 5,275. Record journal entries in the order presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
(To record the lease.)
(To record first lease payment.)
(To record interest.)
(To record amortization.)
(To record second lease payment.)
(To record interest.)
(To record amortization.)
Suppose Pharoah received a lease incentive of $5.000 from Faldo Leasing to enter the lease. Howwould the initial
measurement of the lease liability and right-of-use asset be affected?
Right-of-use asset
Lease Liability
What if Pharoah prepaid rent of $5,0o00 to Faldo?
Right-of-use asset
Lease Liability
24
%24
>
Transcribed Image Text:Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31 (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places eg. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit (To record the lease.) (To record first lease payment.) (To record interest.) (To record amortization.) (To record second lease payment.) (To record interest.) (To record amortization.) Suppose Pharoah received a lease incentive of $5.000 from Faldo Leasing to enter the lease. Howwould the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset Lease Liability What if Pharoah prepaid rent of $5,0o00 to Faldo? Right-of-use asset Lease Liability 24 %24 >
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