Assume that the following facts pertain to a non-cancelable lease agreement betw
ID: 2391765 • Letter: A
Question
Assume that the following facts pertain to a non-cancelable lease agreement between Coco Inc. and Bubs, Corp, a Lessee.
Inception date
January 1, 2017
Residual value of equipment at end of lease term, unguaranteed
$50,000
Lease term
6 years
Economic life of leased equipment
8 years
Fair value of asset at January 1, 2017
$400,000
Lessor’s implicit rate
12%
Lessee’s incremental borrowing rate
10%
The lessee assumes responsibility for all executory costs, which are expected to amount to $2,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment.
Using the spreadsheet, Lease Amort Schedule found in the link below, prepare an amortization schedule that would be suitable for the lessee for the lease term.
Using the spreadsheet Journal Entries, prepare the journal entries for the lessee for 2017 and 2018 to record the lease agreement and all expenses related to the lease. Assume the Lessee’s annual accounting period ends on December 31 and that reversing entries are used when appropriate.
Inception date
January 1, 2017
Residual value of equipment at end of lease term, unguaranteed
$50,000
Lease term
6 years
Economic life of leased equipment
8 years
Fair value of asset at January 1, 2017
$400,000
Lessor’s implicit rate
12%
Lessee’s incremental borrowing rate
10%
Explanation / Answer
Assumption:
Dear Student,
Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.
Year PV Factor @12% PV Factor @10% 1 0.89286 0.90909 2 0.79719 0.82645 3 0.71178 0.75131 4 0.63552 0.68301 5 0.56743 0.62092 6 0.50663 0.56447 Annuity Factor 4.11141 4.35525Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.