Exercise 21A-13 b Your answer is partially correct. Try again. Carla Vista Compa

Question

Exercise 21A-13 b Your answer is partially correct. Try again. Carla Vista Company leases a building to Walsh, Inc. on January 1, 2017. The following facts pertain to the lease agreement. 1. The lease term is 4 years, with equal annual rental payments of $4,901 at the beginning of each year 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $20,300, a book value to Carla Vista of $13,300, and a useful life of 5 years 4. At the end of the lease term, Carla Vista and Walsh expect there to be an unguaranteed residual value of $3,325 5, Carla Vista wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. Click here to view the factor table

Explanation / Answer

Answer: Walsh's Journal Entries Date Journal Entries Debit Credit 1/1/2017 Lease equipment $                               20,299.40 =PV(7%,4,-4901,-3325,1) Lease liability $               20,299.40 (To record lease liability) 1/1/2017 Lease Liability $                                 4,901.00 Cash $                  4,901.00 (To record first installment) 31/12/17 Interest expense $                                 1,077.89 ($20,299.40-4,901)*7% Interest payable $                  1,077.89 (To record interest) 31/12/17 Depreciation expense $                                 5,074.85 ($20,299/4) Accumulated depreciation-Building $                  5,074.85 (To record depreciation) Carla Vista Date Journal Entries Debit Credit 1/1/2017 Lease Receivable $                               20,299.40 Cost of goods sold $                               10,763.37 =16000-PV(7%,4,0,-3325) Sales Revenue $               17,762.77 =20299.4-PV(7%,4,0,-3325) Inventory-Equipment $               13,300.00 (To record sale of building on lease) 1/1/2017 Cash $                                 4,901.00 Lease Receivable $                  4,901.00 (To record first installment) 31/12/2017 Interest receivable $                                 1,077.89 ($20,299.40-4,901)*7% Interest Revenue $                  1,077.89 (To record Interest revenue)

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