FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Crane Corporation ("Crane") manufactures equipment with an estimated economic life of 12 years. On May 30, 2023, Crane leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: ● . ● ● ● Equipment has a fair value and cost at the inception of the lease: $226,255. Guaranteed residual value: $39,000. Annual lease payment, due at beginning of each year: $31,250. Lease contains no renewal options and the equipment reverts to Crane at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 10%. Gadget uses straight-line depreciation for similar equipment that it owns. Crane has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both companies follow ASPE.
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Transcribed Image Text:Crane Corporation ("Crane") manufactures equipment with an estimated economic life of 12 years. On May 30, 2023, Crane leases it to Gadget Corporation ("Gadget") for a period of 10 years. Details of the lease are as follows: ● . ● ● ● Equipment has a fair value and cost at the inception of the lease: $226,255. Guaranteed residual value: $39,000. Annual lease payment, due at beginning of each year: $31,250. Lease contains no renewal options and the equipment reverts to Crane at the end of the lease. Gadget's incremental interest rate, as well as implicit rate is 10%. Gadget uses straight-line depreciation for similar equipment that it owns. Crane has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Assume both companies follow ASPE.
Lessor: (c) Date May 30, 2024 Prepare journal entries at May 30, 2024 for the lessee and lessor. Assume reversing entries are not used. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, eg. 5,275. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts) Lessee: Date May 30, 2024 Account Titles and Explanation (To record lease payment) Account Titles and Explanation (To record interest) (To record collection of lease payment) Debit Debit Credit Credit
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Transcribed Image Text:Lessor: (c) Date May 30, 2024 Prepare journal entries at May 30, 2024 for the lessee and lessor. Assume reversing entries are not used. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to O decimal places, eg. 5,275. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts) Lessee: Date May 30, 2024 Account Titles and Explanation (To record lease payment) Account Titles and Explanation (To record interest) (To record collection of lease payment) Debit Debit Credit Credit
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Step 1: Define Lease.
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Step 2: Pass Journal Entry in the books of lessee.
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Step 3: Pass Journal Entry in the books of lessor.
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