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Soaring Pieces Inc. creates aluminum alloy parts for commercial aircraft. In a recent transaction Soaring...

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Accounting

Soaring Pieces Inc. creates aluminum alloy parts for commercial aircraft. In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp. on January 1, 2019. The following information pertains to the leased asset and the lease agreement:

Lease provisions

Lease term

5 years

Annual payment

40,000

Payment frequency

Annual

Start date of lease

January 1

First payment due

Commencement date of lease

Guaranteed residual value

$15,000

Interest rate implicit in the lease (not readily determinable by lessee)

7%

Lessee's incremental borrowing rate

8%

The lathe machine will revert back to the lessor at end of lease term, title does not transfer to lessee at any time, and there is not a bargain purchase option.

Required:

  1. Determine the amount the right-of use asset and lease liability are initially measured at from the perspective of the lessee. Show all of your inputs and calculations.

  2. Prepare the journal enteries on january 1,2019, december 31,2019 and january 1,2020 for the lessee.

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