Riverbed Corporation leases equipment from Falls Company on January 1, 2017. The

Question

Riverbed Corporation leases equipment from Falls Company on January 1, 2017. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment's 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. Prepare Riverbed's journal entries on January 1, 2017, and December 31, 2017. Assume the annual lease payment is $41,000 at the beginning of each year, and Riverbed's incremental borrowing rate is 5%, which is the same as the lessor's implicit rte. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the actor table provided and round final answers to O decimal places, e.g. 5,265) Click here to view t factor table Date Account Titles and Explanation Debit Credit (To record lease liability) (To record lease payment) 12/31/17

Explanation / Answer

Date Account Title and Explanation Debit Credit 1/1/17 Lease Asset 41000 lease liability 41000 (to record lease liability) 1/1/17 Lease Liability 38950 Interest Expense 2050 Cash 41000 (To record lease payment) 31/12/2017 Depreciation on lease 5125 Accumulated Depreciation 5125 (To record Depreciation on lease)

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