Kieso, Intermediate Accounting, 16e Intermediate Accounting (ACC 371/3 Assignmen
ID: 2530618 • Letter: K
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Kieso, Intermediate Accounting, 16e Intermediate Accounting (ACC 371/3 Assignment Gradebook ORION Downloadable eTextbook nt CALCULATOR, NESSAGE HY ?NSTRUCTOR-FULL SCREEN k pRINTER VERSION "ACK Brief Exercise 21-2 Blossom Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $33,599 at the beginning of each year. The equipment has a fair value at the inception of the lease of $119,000, an estimated useful life-of 4 years, and no salvage value. Blossom pays all executory costs directly to third parties. The appropriate interest rate is 9% select "No Entry" for the account titles and enter O for the amounts.) nt is entered. Do not indent manually. If no entry is required, Date Account Titles and Explanation Debit Credit January 1, 2017 (To record the lease.) (To record first lease payment.) Click if you would like to Show Work for this question: Open Show Wark SHOW LIST OF ACCOUNTS VIDEO, SIMILAR EXERCISE By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Poliay set by your InstructorExplanation / Answer
Since the lease period is for the entire useful life of the asset, it is a finance lease.
The present value of the lease payments is :
33699 + 33699/(1+9%) + 33699/(1+9%)2 + 33699/(1+9%)3 = 119,001.1
Since the Fair Value of the lease is less than the present value of the lease payments, we recognize the lease at the Fair Value:
Recording the Lease:
Recording the Lease Payment
Lease Liability
Note: Since the Payments happen at the begninning of the year, there is no interest charge at the time of payment of the 1st installment. Hence the entire payment is adjusted against the principal Lease Liability
Debit Credit Leased Asset 119000 Lease Liability 119000Related Questions
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