Bramble Corporation leases equipment from Falls Company on January 1, 2025. 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 Bramble's journal entries on January 1, 2025, and December 31, 2025, Assume the annual lease payment is $50,000 at the beginning of each year, and Bramble's incremental borrowing rate is 7%, which is the same as the lessor's implicit rate. (List all debit entries before credit entries. 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 factor table provided and round final answers to 0 decimal places, eg. 5,265. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.)

Bramble Corporation leases equipment from Falls Company on January 1, 2025. 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 Bramble's journal entries on January 1, 2025, and December 31, 2025, Assume the annual lease payment is $50,000 at the beginning of each year, and Bramble's incremental borrowing rate is 7%, which is the same as the lessor's implicit rate. (List all debit entries before credit entries. 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 factor table provided and round final answers to 0 decimal places, eg. 5,265. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Record journal entries in the order presented in the problem.)

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 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...

See similar textbooks

Related questions

Q: Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2020. The…

A: Given than : Lease term =7 yearsEconomic life =9 years Fair value =$ 657,000Guaranteed residual…

Q: Sandhill Company leases a building to Teal Mountain, Inc. on January 1, 2025. The following facts…

A: Lessor and Lessee agreements: A lease of immovable property is a transfer of a right to enjoy such…

Q: Required: Determine the present value of minimum lease rental payment. Prepare the journal…

Q: Cullumber Company leases a building to Marin, Inc. on January 1, 2020. The following facts pertain…

A: If you meet any criteria of below, then considered as a finance lease, otherwise considered as an…

Q: m's Gyms records a debit to lease expense for $183,651. 's Gyms record a credit to lease payable of…

A: Operating lease is a contract where the lessor allows the lessee to use an asset for a particular…

Q: Ivanhoe Leasing Company agrees to lease equipment to Shamrock Corporation on January 1, 2020. The…

A: Lease: A lease is an agreement by which one party conveys land, property, administrations, and so…

Q: Flounder Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement…

A: A lease refers to a contract that allows the lessee to pay a certain amount of money to the lessor…

Q: (a) Determine the present value of minimum lease rental payment

A: Lease liability refers to obligation of the company requires to pay periodic lease payment on the…

Q: Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. The…

A: For lessor a lease can be recorded as finance lease in two ways as direct lease or sale type lease.…

Q: Wells Leasing Company signs an agreement on January 1, 2020, to lease equipment to Manchester…

A: Given, Asset value= $250,000 Residual value= $25,000 Lease term = 6 years Interest rate = 6%

Q: Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease…

A: Lease agreement: The lease agreement is a contractual obligation created out of lease agreement,…

Q: Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The following…

A: There are 2 types of leases covered under lease accounting:- Operating lease Finance lease

Q: hamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to…

A: The lease is a contract in which one of the party, the lessor, grants the right to use a particular…

Q: Phelps Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to…

A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…

Q: Assume that the lease contract involved an identified leased equipment at a cost of $120,000 by the…

A: Naming Convention is not available, can be slightly different :

Q: Marin Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The…

A: Note:- Since the lessor's desired rate of return on its investment is missing in the question,…

Q: Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the…

A: Calculation of Annual Rental Payment Computation of Rental (Assuming 10% Rate) Fair Value…

Q: Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Larkspur Company.…

A: Lease: It is a formal agreement between two parties where in one party lends to another, property or…

Q: Waterworld Company leased equipment from Costner Company, beginning on December 31, 2019. The lease…

A: Prepare Waterworld's 2019 and 2020 journal entries, assuming Waterworld depreciates similar…

Q: Linda Leasing Company signs an agreement on January 1, 2025, to lease equipment to Swifty Company.…

A: Entry 1: Recording the Lease AgreementRight-of-Use Asset ($57,802.45): This represents the value of…

Q: Blossom, Inc. leases a piece of equipment to Wildhorse Company on January 1, 2025. The contract…

A: To journalize the commencement of a lease, we begin by identifying the minimum lease payment. Once…

Q: Wells Leasing Company signs an agreement on January 1, 2020, to lease equipment to Manchester…

A: The question is related to Accounting for Lease. The Present value of lease rent from standpoint…

Q: Brown Enterprises enter into a 4 year lease with ABC Leasing Company. The lease qualifies as an…

A: A lease is an arrangement where a lessor agrees to allow a lessee to control the use of the asset…

Q: Oriole Leasing Company signs an agreement on January 1, 2025, to lease equipment to Pharoah Company.…

A: Lease is an agreement where one party acquires the right to use of asset in exchange of some rental…

Q: ABC Company leases a machinery from XYZ Company under a twelve-month operating lease. As an…

A: In an operating lease, the lessor recognized lease income in their income statements, and the lessee…

Q: Marin, Inc. leases a piece of equipment to Bucks Company on January 1, 2020. The contract stipulates…

A: Journal entries are entered in the book based on the double-entry bookkeeping principle which…

Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Date
Account Titles and Explanation
(To record lease liability).
(To record lease payment)
Debit
100
Credit

Bramble Corporation leases equipment from Falls Company on January 1, 2025. 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 Bramble's journal entries on January 1, 2025, and December 31, 2025. Assume the annual lease payment is $50,000 at the
beginning of each year, and Bramble's incremental borrowing rate is 7%, which is the same as the lessor's implicit rate. (List all debit
entries before credit entries. 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 factor table provided and round final answers to 0 decimal places, eg. 5,265. If no
entry is required, select "No Entry for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the
problem.)

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define Lease Types from Viewpoint of a Lessee

VIEW

Step 2: Preparing Lease Amortization Schedule

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line method
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
Lessor Accounting Issues Ramsey Company leases heavy equipment to Terrell Inc. on March 1, 2019, on the following terms: 1. Twenty-four lease rentals of 2,950 at the beginning of each month are to be paid by Terrell, and the lease is noncancelable. 2. The cost of the heavy equipment to Ramsey was 55,000. 3. Ramsey uses an implicit interest rate of 18% per year and will account for this lease as a sales-type lease. Required: Prepare journal entries for Ramsey (the lessor) to record the lease contract on March 1, 2019, the receipt of the first two lease rentals, and any interest income for March and April 2019. (Round your answers to the nearest dollar.)
Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Lessee and Lessor Accounting Issues The following information is available for a noncancelable lease of equipment entered into on March 1, 2019. The lease is classified as a sales-type lease by the lessor (Anson Company) and as a finance lease by the lessee (Bullard Company). Assume that the lease payments are nude at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a 3-year life. Required: 1. Record the lease (including the initial receipt of 2,000) and the receipt of the second and third installments of 2,000 in Ansons accounts. Carry computations to the nearest dollar. 2. Record the lease (including the initial payment of 2,000), the payment of the second and third installments of 2,000, and monthly depreciation in Bullards accounts. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.
Lease Income and Expense Reuben Company retires a machine from active use on January 2, 2019, for the express purpose of leasing it. The machine had a carrying value of 900,000 after 12 years of use and is expected to have 10 more years of economic life. The machine is depreciated on a straight-line basis. On March 2, 2019, Reuben leases the machine to Owens Company for 180,000 a year for a 5-year period ending February 28, 2024. Under the provisions of the lease, Reuben incurs total maintenance and other related costs of 20,000 for the year ended December 31, 2019. Owens pays 180,000 to Reuben on March 2, 2019. The lease was properly classified as an operating lease. Required: 1. Compute the income before income taxes derived by Reuben from this lease for the calendar year ended December 31, 2019. 2. Compute the amount of rent expense incurred by Owens from this lease for the calendar year ended December 31, 2019.