Bridgeport Corporation agrees on January 1, 2017, to lease equipment from Alpha,

Question

Bridgeport Corporation agrees on January 1, 2017, to lease equipment from Alpha, Inc. for 4 years. The lease calls for annual lease payments of $33,000 at the beginning of each year. The lease does not transfer ownership, contain a bargain-purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 12 years, and the present value of the lease payments is less than 90% of the fair value of the equipment.

Prepare Bridgeport’s journal entries on January 1, 2017 (commencement of the operating lease), and on December 31, 2017. Assume the implicit rate used by the lessor is unknown, and Bridgeport’s incremental borrowing rate is 8%.

Explanation / Answer

Ans: As seen in above the problem is in entry 3 , so solving it accordingly:(please comment if any further solution required.

12/31/17    Lease Expenses   Dr 33000

                    Lease Liability                        6,803.52    (118044-33000)*12%

                    Right of Use Asset                58,847.52     (Balancing figure)

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