50.1K

Verified Solution

Link Copied!

need proper entries with correct answer

On January 1, 2020, Adliya Company signs a 4-year lease contract to lease an equipment from Gulf Company. The lease agreement is non-renewable and non-cancelable. According to the agreement, the lessee is required to make annual rental payment of $240,000 beginning from January 1,2020. The lease contains the following provisions: 1. The estimated economic life of the equipment is 5 years. 2. At the inception of the lease, the fair value of the equipment is $840,000. 3. Each annual rental payment includes $14,487,72 of executory costs relating to property taxes. 4. The lessee's incremental borrowing rate is 10%. The lessor's implicit rate is 8% and is known to the lessee. 5. At the end of the lease term, the equipment will revert to the lessor, and at that time the equipment is expected to have unguaranteed residual value of $48,000. 6. Both. Adliya Company and Gulf Company, use the straight-line method for depreciation. Additional information: The present value of an Ordinary Annuity of $1 and the present value of an Annuity Due of $1 for 5 periods at 8%,9% and 10% are as follows: Instructions: A. What is the type of this lease to Adliya Company? Explain why. B. Prepare an amortization schedule through the years 2021 and 2022 that would be suitablo for the lessee. C. Prepare the necessary journal entries in the books of Adliya Compasy during 2020 and January 1,2021 to reflect the lease agreement, the lease payments and all expenses related to this lease. Assume that the lessee's annual accounting period ends on December 31

Answer & Explanation Solved by verified expert

See Answer