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Problem 10 Lessee with Guaranteed Residual Value On January 1,1999, B Company leased...

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Accounting

Problem 10
Lessee with Guaranteed Residual Value
On January 1,1999, B Company leased a concrete truck with a fair value of $265,000 from E Company on the following terms.
a. Noncancelable lease for 6 years
b. Lease payments of $52,500 per year. First payment is made on 1-1-19xx, and other payments are made on Dec. 31.
c. Estimated residual value is $45,890 and B Company guarantees residual value.
d. Estimated economic life of the truck is 9 years.
e. B's incremental borrowing rate is 13% a year. Implicit rate is 12%.
Required
Page 2 of 4
Is this a capital lease or operating lease. Why?
Instructions: Prepare journal entries on the books of the lessee through the first two years.
The accounting period of A and B Company ends on December 31.
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