FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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.
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On January 1, 2024, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31. 2027, at which time possession of the leased asset will revert back to Aqua • The equipment cost Aqua $427,906 and has an expected economic life of five years. • Aqua and Maywood expect the residual value at December 31, 2027, to be $64,000. Negotiations led to Maywood guaranteeing a $91,000 residual value . • Equal payments under the lease are $128,000 and are due on December 31 of each year with the first payment being made on December 31, 2024 • Maywood is aware that Aqua used a 5% interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. & 2. Prepare the appropriate entries for Maywood on January 1,2024 and December 31, 2024, related to the lease. Note: If no entry is required for a transaction/event, select "No journal entry required" the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar. View transaction list View journal entry worksheet No 1 2 3 Date January 01, 2024 Right-of-use asset Lease payable December 31, Amortization expense 2024 Right-of-use asset December 31, 2024 Interest expense Lease payable Cash General Journal Debit Credit
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Transcribed Image Text:On January 1, 2024, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31. 2027, at which time possession of the leased asset will revert back to Aqua • The equipment cost Aqua $427,906 and has an expected economic life of five years. • Aqua and Maywood expect the residual value at December 31, 2027, to be $64,000. Negotiations led to Maywood guaranteeing a $91,000 residual value . • Equal payments under the lease are $128,000 and are due on December 31 of each year with the first payment being made on December 31, 2024 • Maywood is aware that Aqua used a 5% interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. & 2. Prepare the appropriate entries for Maywood on January 1,2024 and December 31, 2024, related to the lease. Note: If no entry is required for a transaction/event, select "No journal entry required" the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar. View transaction list View journal entry worksheet No 1 2 3 Date January 01, 2024 Right-of-use asset Lease payable December 31, Amortization expense 2024 Right-of-use asset December 31, 2024 Interest expense Lease payable Cash General Journal Debit Credit
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Step 1: Introduction of Lease
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Step 2: Working for leases
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Step 3: Journal entry
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