On January 1, 2016, Rider Inc. leased a truck to Pine Valley Transportation. The

Question

On January 1, 2016, Rider Inc. leased a truck to Pine Valley Transportation. The lease qualifies as a capital lease under criteria established by the accounting profession. The following information relates to this agreement:

1. The lease term is for 10 years. The useful life of the truck is 15 years.

2. The lease agreement specifies that ownership of the asset be transferred to the lessee at the end of the lease term.

3. Lease payments are $8,800 per year (exclusive of executory costs) with the first payment due January 1, 2016.

4.Pine Valley’s incremental borrowing rate is 15%. The lessor’s implicit rate is 10% and is known to Pine Valley the lessee.

5. Maintenance and other operating costs (executory costs), not included in the lease payments, are $1,500 and payable on June 1 of each year by Pine Valley.

6. Pine Valley uses straight-line depreciation on all its assets. (note: review GAAP depreciation for capital leases)

7. Rider uses reversing journal entries where appropriate.

8. The present value factors for an annuity due are as follows:

15% 5.77158 10% 6.75902

Instructions 1. Provide all necessary journal entries required of Pine Valley for the years 2016 and 2017. 2. Complete the lease amortization schedule below (up to 1/1/19) (round all answers to the nearest dollar)

Date

Lease

Payment

Interest

Lease

Reduction

Lease Obligation

Balance

1/1/16

1/1/16

1/1/17

1/1/18

1/1/19

SECTION II

Worksheet

Date

Account Titles and Explanation

Dr.

Cr.

Date

Lease

Payment

Interest

Lease

Reduction

Lease Obligation

Balance

1/1/16

1/1/16

1/1/17

1/1/18

1/1/19

Explanation / Answer

2.

The Rider company took lease a Truck for lease payment of $8,800 for 10 years. The cost of truck capitalized by the company would be as under: The cummulative present value at the interest rate of 15% for 10 years =$5.77158 The present value of Total lease payment with which the Truck account will be capitalized is calculated as under: Lease payment per month $8,800 Minimum annual lease payment $8,800 Cummulative present value of 10 years @ 15% 5.77158 Capitalization of asset $              50,790

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.