Waterway Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $46,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Waterway's incremental borrowing rate is 9%. Waterway is unaware of the rate being used by the lessor. At the end of the lease, Waterway has the option to buy the equipment for $5.000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Waterway uses the straight-line method of depreciation on similar owned equipment. Prepare the journal entries, that Waterway should record on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manualy. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answers to O decimal places, e.g. 58,971.) ate Account Titles and Explanation Debit Credit ember 020 (To record leased asset and related liability.)

Question
Waterway Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual
rental payments of $46,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor
in setting the payment schedule is 7%; Waterway's incremental borrowing rate is 9%. Waterway is unaware of the rate being used
by the lessor. At the end of the lease, Waterway has the option to buy the equipment for $5.000, considerably below its estimated
fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Waterway uses the straight-line
method of depreciation on similar owned equipment.
Prepare the journal entries, that Waterway should record on December 31, 2020. (Credit account titles are automatically indented
when amount is entered. Do not indent manualy. If no entry is required, select "No Entry" for the account titles and enter O for the
amounts. Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answers to O decimal places, e.g.
58,971.)
ate
Account Titles and Explanation
Debit
Credit
ember
020
(To record leased asset and related liability.)
Expand
Transcribed Image Text

Waterway Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $46,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Waterway's incremental borrowing rate is 9%. Waterway is unaware of the rate being used by the lessor. At the end of the lease, Waterway has the option to buy the equipment for $5.000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Waterway uses the straight-line method of depreciation on similar owned equipment. Prepare the journal entries, that Waterway should record on December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manualy. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answers to O decimal places, e.g. 58,971.) ate Account Titles and Explanation Debit Credit ember 020 (To record leased asset and related liability.)

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