The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. Commencement date January 1, 2020 Annual lease payment due at the beginning of each year, beginning with January 1, 2020 $113,864 Residual value of equipment at end of lease term, guaranteed by the lessee $50,000 Expected residual value of equipment at end of lease term $45,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2020 $600,000 Lessor's implicit rate 8% Lessee's incremental borrowing rate 8% 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. Instructions a. Prepare an amortization schedule that would be suitable for the lessee for the lease term. b. Prepare all of the journal entries for the lessee for 2020 and 2021 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. c. Suppose Vance received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? What if Vance prepaid rent of $5,000 to Faldo?
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. Commencement date January 1, 2020 Annual lease payment due at the beginning of each year, beginning with January 1, 2020 $113,864 Residual value of equipment at end of lease term, guaranteed by the lessee $50,000 Expected residual value of equipment at end of lease term $45,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2020 $600,000 Lessor's implicit rate 8% Lessee's incremental borrowing rate 8% 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. Instructions a. Prepare an amortization schedule that would be suitable for the lessee for the lease term. b. Prepare all of the journal entries for the lessee for 2020 and 2021 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. c. Suppose Vance received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? What if Vance prepaid rent of $5,000 to Faldo?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee.
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Commencement date
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January 1, 2020
|
|
Annual lease payment due at the beginning of each year, beginning with January 1, 2020
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$113,864
|
|
Residual value of equipment at end of lease term, guaranteed by the lessee
|
$50,000
|
|
Expected residual value of equipment at end of lease term
|
$45,000
|
|
Lease term
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6 years
|
|
Economic life of leased equipment
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6 years
|
|
Fair value of asset at January 1, 2020
|
$600,000
|
|
Lessor's implicit rate
|
8%
|
|
Lessee's incremental borrowing rate
|
8%
|
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.
Instructions
a. Prepare an amortization schedule that would be suitable for the lessee for the lease term.
b. Prepare all of the
c. Suppose Vance received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? What if Vance prepaid rent of $5,000 to Faldo?
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