Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. lessee enters into a four-year lease of equipment

Lessee enters into a four-year lease of equipment and concludes that the agreement is a...

70.2K

Verified Solution

Question

Accounting

  1. Lessee enters into a four-year lease of equipment and concludes that the agreement is a finance lease because the leasecontains an option for Lessee to purchase the equipment at the end of the lease and the Lessee is reasonably certain to exercise that option. The arrangement provides the following:
Lease term Four years, with the first payment due at lease commencement and the remainder annually at the lease anniversary date thereafter
Annual payments, beginning at lease commencement and annually thereafter

Commencement $50,000 Year 2 $53,000

Year 3 $56,000 Year4 -- $60,000
Discount rate 4.5%
PV of lease payments $204,577

Complete the following schedule to show the impact on the income statement and balance sheet.

Initial Year 1 Year 2 Year 3 Year 4
Cash lease payments
Income statement:
Lease expense recognized:
Interest expense
Amortization expense
Total periodic expense
Balance sheet:
ROU asset
Lease liability

  • Prepare the journal entries at the time of the lease commencement and for Year 1 of the lease term.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students