Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease. Lease term Economic life of the leased equipment Annual lease payments Payment date (first payment due at lease commencement) Fair value of the leased equipment Lessor Corp's carrying value of the leased equipment Rate implicit in the lease (known by lessee) Estimated fair value of the equipment at the end of the lease term Required a. Determine the classification of the lease for Lessee Corporation. t Lease Liability Schedule 5 years 6 years $2,614 Annually on Jan. 1 $11,440 $9,900 10.03% $880 Journal Entries b. Prepare a schedule of the lease liability for the first two years of the lease term. . Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Recording Entries for Finance Lease with Unguaranteed Residual Value-Lessee
Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee
Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease.
Lease term
Economic life of the leased equipment
Annual lease payments
Payment date (first payment due at lease commencement)
Fair value of the leased equipment
Lessor Corp's carrying value of the leased equipment
Rate implicit in the lease (known by lessee)
Estimated fair value of the equipment at the end of the lease term
Required
a. Determine the classification of the lease for Lessee Corporation.
•
Lease Liability Schedule Journal Entries
5 years
6 years
$2,614
Annually on Jan. 1
$11,440
$9,900
10.03%
$880
b. Prepare a schedule of the lease liability for the first two years of the lease term.
. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
Transcribed Image Text:Recording Entries for Finance Lease with Unguaranteed Residual Value-Lessee Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease. Lease term Economic life of the leased equipment Annual lease payments Payment date (first payment due at lease commencement) Fair value of the leased equipment Lessor Corp's carrying value of the leased equipment Rate implicit in the lease (known by lessee) Estimated fair value of the equipment at the end of the lease term Required a. Determine the classification of the lease for Lessee Corporation. • Lease Liability Schedule Journal Entries 5 years 6 years $2,614 Annually on Jan. 1 $11,440 $9,900 10.03% $880 b. Prepare a schedule of the lease liability for the first two years of the lease term. . Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
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