On January 1, 2020, Wildhorse Company contracts to lease equipment for 5 years, agreeing to make a payment of $151,860 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $623,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective interest basis. Wildhorse's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Wildhorse. Title to the equipment transfers to Wildhorse at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. (b) Prepare the journal entries that Wildhorse should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts Round present value factor calculations to 5 decimal places, eg 1.25124 and the final answers to 0 decimal places, eg. 5,275)

On January 1, 2020, Wildhorse Company contracts to lease equipment for 5 years, agreeing to make a payment of $151,860 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $623,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective interest basis. Wildhorse's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Wildhorse. Title to the equipment transfers to Wildhorse at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. (b) Prepare the journal entries that Wildhorse should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts Round present value factor calculations to 5 decimal places, eg 1.25124 and the final answers to 0 decimal places, eg. 5,275)

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
On January 1, 2020 Warner Company contracts to lease equipment for 5 years, agreeing tomake a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leasedequipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Warner'sincremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known byWarner. Title to the equipment transfers to Warner at the end of the lease. The asset has anestimated useful life of 5 years and no residual value. 4. Prepare the journal entry to record the lease payment of January 1, 2021, assumingreversing entries are not made.5. What amounts will appear on the lessee's December 31, 2020, balance sheet relative tothe lease contract?6. How would the value of the lease liability in part 2 change if Warner also agreed to paythe fixed annual insurance on the equipment of $2,000 at the same time as the…
On January 1, 2020 Warner Company contracts to lease equipment for 5 years, agreeing tomake a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leasedequipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Warner'sincremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known byWarner. Title to the equipment transfers to Warner at the end of the lease. The asset has anestimated useful life of 5 years and no residual value.1. Explain the probable relationship of the $550,000 amount to the lease arrangement.2. Prepare the journal entry or entries that Warner should record on January 1, 2020.3. Prepare the journal entries to record amortization of the leased asset and interestexpense for the year 2020.4. Prepare the journal entry to record the lease payment of January 1, 2021, assumingreversing entries are not…
On January 1, 2020, Marin Company contracts to lease equipment for 5 years, agreeing to make a payment of $150,642 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $618,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Marin's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Marin. Title to the equipment transfers to Marin at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables.
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On January 1, 2025, Bridgeport Company contracts to lease equipment for 5 years, agreeing to make a payment of $128,104 at the beginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at $572,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Bridgeport's incremental borrowing rate is 7%, and the implicit rate in the lease is 6%, which is known by Bridgeport. Title to the equipment transfers to Bridgeport at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.
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On January 1, 2025, Splish Company contracts to lease equipment for 5 years, agreeing to make a payment of $128,104 at the beginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at $572,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Splish's incremental borrowing rate is 7%, and the implicit rate in the lease is 6%, which is known by Splish. Title to the equipment transfers to Splish at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. (f) What is the value of the lease liability if Splish also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? (Round answers to O decimal places, eg. 5,275.) Lease liability $
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