70.2K

Verified Solution

Link Copied!

Current Attempt in Progress

Buffalo Steel Company, as lessee, signed a lease agreement for equipment for $5$ years, beginning December $31,2025.$ Annual rental

payments of $$53,000$ 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 $4\%$; Buffalo's incremental borrowing rate is $6\%.$ Buffalo is unaware of the rate being used by the lessor. At the

end of the lease, Buffalo 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. Buffalo uses the straight$-$line method of depreciation on

similar owned equipment.

Click here to view factor tables.

$($a$)$

Prepare the journal entries, that Buffalo should record on December $31,2025.($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 $0$ for the amounts. Round present value factor calculations to $5$ decimal places, e$.$g$.1\mathrm{.}25124$ and the final

answers to $0$ decimal places, e$.$g$.58,971.$ List all debit entries before credit entries.$)$

Date

December

Account Titles and Explanation

Debit

Screenshot and enter $0$ for the amounts. Round present value factor calculations to $5$ decimal places, e$.$g$.1\mathrm{.}25124$ and the final

answers to $0$ decimal places, e$.$g$.58,971.$ List all debit entries before credit entries.$)$

Date

Account Titles and Explanation

Debit

Credit

December

$31,2025$

$($To record leased asset and related liability.$)$

December

$31,2025$

$($To record the first rental payment.$)$

eTextbook and Media

List of Accounts

Show all imagesShow all images

Answer & Explanation Solved by verified expert

See Answer