On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 10 years. • The lease does not contain a renewal or bargain purchase option. • The annual rentals are $3,870, payable at the beginning of each year. • Baltimore agrees to pay all executory costs directly to a third party. • The cost of the equipment to the lessor is $24,177.54. The fair value of the equipment is $25,700. • Amity incurs initial direct costs of $1,310.90. • The interest rate implicit in the lease is 12%. • Amity expects to collect all lease payments from Baltimore. • Amity estimates that the fair value at the end of the lease term will be $3,100 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. Required: Prepare the journal entries for Amity for 2019.
On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 10 years. • The lease does not contain a renewal or bargain purchase option. • The annual rentals are $3,870, payable at the beginning of each year. • Baltimore agrees to pay all executory costs directly to a third party. • The cost of the equipment to the lessor is $24,177.54. The fair value of the equipment is $25,700. • Amity incurs initial direct costs of $1,310.90. • The interest rate implicit in the lease is 12%. • Amity expects to collect all lease payments from Baltimore. • Amity estimates that the fair value at the end of the lease term will be $3,100 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. Required: Prepare the journal entries for Amity for 2019.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 1P: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases...
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On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions:
| • | The lease is noncancelable and has a term of 10 years. |
| • | The lease does not contain a renewal or bargain purchase option. |
| • | The annual rentals are $3,870, payable at the beginning of each year. |
| • | Baltimore agrees to pay all executory costs directly to a third party. |
| • | The cost of the equipment to the lessor is $24,177.54. The fair value of the equipment is $25,700. |
| • | Amity incurs initial direct costs of $1,310.90. |
| • | The interest rate implicit in the lease is 12%. |
| • | Amity expects to collect all lease payments from Baltimore. |
| • | Amity estimates that the fair value at the end of the lease term will be $3,100 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. |
Required:
| Prepare the |
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