Exercise 21A-19 a-d Pronghorn Corporation leased equipment to Larkspur, Inc. on
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Question
Exercise 21A-19 a-d
Pronghorn Corporation leased equipment to Larkspur, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,179 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,900, a book value of $6,900, and Pronghorn expects a residual value of $6,400 at the end of the lease term. Pronghorn set the lease payments with the intent of earning a 5% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate of 7%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
Prepare all necessary journal entries for Larkspur in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
1/1/17
(To record the lease)
1/1/17
(To record lease liability)
12/31/17
How would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, Larkspur was also required to pay $600 in commissions, prepay $700 in addition to the first rental payment, and pay $250 of insurance each year? (Round answers to 0 decimal places, e.g. 5,275.)
Suppose, instead of a 3-year lease term, Larkspur and Pronghorn agree to a one-year lease with a payment of $1,179 at the start of the lease. Prepare necessary journal entry for Larkspur in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
1/1/17
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Exercise 21A-19 a-d
Pronghorn Corporation leased equipment to Larkspur, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,179 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,900, a book value of $6,900, and Pronghorn expects a residual value of $6,400 at the end of the lease term. Pronghorn set the lease payments with the intent of earning a 5% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate of 7%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
Prepare all necessary journal entries for Larkspur in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
1/1/17
(To record the lease)
1/1/17
(To record lease liability)
12/31/17
How would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, Larkspur was also required to pay $600 in commissions, prepay $700 in addition to the first rental payment, and pay $250 of insurance each year? (Round answers to 0 decimal places, e.g. 5,275.)
Lease liability $ Right-of-use-asset $Suppose, instead of a 3-year lease term, Larkspur and Pronghorn agree to a one-year lease with a payment of $1,179 at the start of the lease. Prepare necessary journal entry for Larkspur in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
1/1/17
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Explanation / Answer
Solution:
Preparing the necessary Journal entries for Larkspur in 2017:
Pronghorn Corporation:
Larkspur Corporation:
Lease Amortization Schedule
Annuity Due Basis
Lease Expense Schedule
Determining the how the Lease liability and right-of-use asset be affected:
The following is the calculation of the Lease Liability for the Larkspur,
1) PV of Annuity Due of $1 for n = 3, i = 7%
The Calculation of the Right-of-use asset is as follows,
Preparing the Journal Entry for Larkspur in 2017:
Date General Journal Debit Credit 1/1/17 Right of use Asset $3,311 Lease Liability $3,311 1/1/17 Lease Liability $1,179 Cash $1,179Related Questions
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