90.2K

Verified Solution

Link Copied!

P21-3B (Lessee-Lessor Entries, Balance Sheet Presentation, Sales-Type Lease) Manatee Industries and Sea Cow Inc. enter into an agreement that requires Sea Cow Inc. to build two charter fishing boats to Manatees specifications. Upon completion of the boats, Manatee has agreed to lease them for a period of 8 years and to assume all costs and risks of ownership. The lease is noncancelable, becomes effective on January 1, 2014, and requires annual rental payments of $84,591 each January 1, starting January 1, 2014. Manatees incremental borrowing rate is 12%. The implicit interest rate used by Sea Cow Inc. and known to Manatee is 8%. The total cost of building the two boats is $450,000. The economic life of the boats is estimated to be 8 years, with residual value set at zero. Manatee depreciates similar equipment on a straight-line basis. At the end of the lease, Manatee assumes title to the boats. Collectibility of the lease payments is reasonably certain; no uncertainties exist relative to unreimbursable lessor costs. 2 8 3 4 2 8 9 B PROBLEMS 1 c21BProblems.indd Page 1 01/02/13 9:58 PM f-392 21BProblems.indd Page 1 01/02/13 9:58 PM f-392 /208/WB00806_ONL/XXXXXXXXXXXXX/ch21/text_s 208/WB00806_ONL/XXXXXXXXXXXXX/ch21/text_s 2 Chapter 21 Accounting for Leases Instructions (Round all numbers to the nearest dollar.)

(a) Discuss the nature of this lease transaction from the viewpoints of both lessee and lessor.

(b) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Manatee Industries.

(c) Prepare the journal entry or entries to record the transaction on January 1, 2014, on the books of Sea Cow Inc.

(d) Prepare the journal entries for both the lessee and lessor to record the first rental payment on January 1, 2014.

(e) Prepare the journal entries for both the lessee and lessor to record interest expense (revenue) at December 31, 2014. (Prepare a lease amortization schedule for 2 years.) (f) Show the items and amounts that would be reported on the balance sheet (not notes) at December 31, 2014, for both the lessee and the lessor.

Please when you answer the question please mark which one is which please. A, B, C, D, E

I need help please.

Thank You

Answer & Explanation Solved by verified expert

See Answer