Presented below are three different lease transactions that occurred for Ruggier
ID: 2425792 • Letter: P
Question
Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2017. Assume that all lease contracts start on January 1, 2017. In no case does Ruggiero receive title to the properties leased during or at the end of the lease term.
Lessor
Judson Delivery
Hester Co.
Gunselman Auto
Type of property
Computer
Delivery equipment
Automobile
Yearly rental
$5,400
$4,600
$4,100
Lease term
6 years
4 years
2 years
Estimated economic life
7 years
7 years
5 years
Fair value of lease asset
$35,000
$26,500
$18,500
Present value of the lease rental payments
$33,500
$20,500
$13,900
Bargain purchase option
None
None
None
b. How should the lease transaction for Hester Co. be recorded in 2017? (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
c.How should the lease transaction for Judson Delivery be recorded on January 1, 2017?
Lessor
Judson Delivery
Hester Co.
Gunselman Auto
Type of property
Computer
Delivery equipment
Automobile
Yearly rental
$5,400
$4,600
$4,100
Lease term
6 years
4 years
2 years
Estimated economic life
7 years
7 years
5 years
Fair value of lease asset
$35,000
$26,500
$18,500
Present value of the lease rental payments
$33,500
$20,500
$13,900
Bargain purchase option
None
None
None
Explanation / Answer
Solution.
B.
Judson Delivery
Fixed assets account Debited $35,000
Capital lease liability account credited $35,000
Hester Co.
Fixed assets account Debited $26,500
Capital lease liability account credited $25,500
Gunselman Auto
Lease / Rental expense account debited $4,100
C. Lease transaction for Judson Delivery.
Lease transaction for Judson Delivery is a financing lease.
Begning of lease.
Fixed assets Computer account Debited $35,000
Capital lease liability account credited $35,000
End of Each year
Capital lease liability account debited $5,400
Interest expense Account debited
Cash account credited $5,400
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