Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract stipulates a lease term of 5 years, with equal annual rental payments of $8,880 at the end of each year. 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. The asset has a fair value of $48,000, a book value of $43,000, and a useful life of 8 years. At the end of the lease term, Blossom expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Assuming Blossom wants to earn a 5% return on the lease and collectibility of the lease payments is probable, record its journal entry at the commencement of the lease on January 1, 2025. (List all debit entries before credit entries. Credit account titles are automatically

Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. The following information relates to the lease agreement. 1.   The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2.   The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2020, is $737,000. 3.   At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Blue estimates that the expected residual value at the end of the lease term will be 60,000. Blue amortizes all of its leased equipment on a straight-line basis. 4.   The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5.   The collectibility of the lease payments is probable. 6.   Blossom desires a 10% rate of return on its investments. Blue’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown. (Assume the accounting…

On January 1, 2025, Sandhill, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Pronghorn Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2025 is $5800000; however, the book value to Holt is $4750000. (c) The building has an estimated economic life of 10 years, with no residual value. Sandhill depreciates similar buildings using the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Sandhill's incremental borrowing rate is 10% per year. Pronghorn Warehouse Co. set the annual rental to ensure a 8% rate of return. The implicit rate of the lessor is known by Sandhill, Inc. (f) In…

Skysong Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement. 1.   The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2.   The cost of the asset to the lessor is $341,000. The fair value of the asset at January 1, 2020, is $341,000. 3.   The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $20,010, none of which is guaranteed. 4.   The agreement requires equal annual rental payments, beginning on January 1, 2020. 5.   Collectibility of the lease payments by Skysong is probable. Click here to view factor tables. (a)     Assuming the lessor desires a 8% rate of return on its investment, calculate the amount of the annual rental payment required.