Recording Entries for Finance Lease-No Residual On January 1 of Year 1, Ashe Company entered into a five-year equipment lease (with no renewal options) requiring payments of $28,000, with the first payment due immediately. The lessor's implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of five years. a. How would Ashe Company classify the lease? Finance lease ◆ b. Prepare a schedule of the lease liability for the 5-year lease term. • Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Jan. 1, Year 1 Jan. 1, Year 1 $ Jan. 1, Year 2 Jan. 1, Year 3 Jan. 1, Year 4 Jan. 1, Year 5 Total $ Lease Payment 0 x $ 0 x 0 x 0x 0 x 0 $ Interest on Liability 0 0 x 0 x 0 x 0 x Lease Liability Change $ 0 $ 0 x 0 x 0x 0 0 0 $ Lease Liability 0 x 0 x 0 x XOOO 0 0 0 c. Prepare the entries for Ashe on (1) January 1 to record commencement of the lease and the first lease payment, and (2) December 31 to record the two year-end adjusting entries.
Recording Entries for Finance Lease-No Residual On January 1 of Year 1, Ashe Company entered into a five-year equipment lease (with no renewal options) requiring payments of $28,000, with the first payment due immediately. The lessor's implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of five years. a. How would Ashe Company classify the lease? Finance lease ◆ b. Prepare a schedule of the lease liability for the 5-year lease term. • Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Date Jan. 1, Year 1 Jan. 1, Year 1 $ Jan. 1, Year 2 Jan. 1, Year 3 Jan. 1, Year 4 Jan. 1, Year 5 Total $ Lease Payment 0 x $ 0 x 0 x 0x 0 x 0 $ Interest on Liability 0 0 x 0 x 0 x 0 x Lease Liability Change $ 0 $ 0 x 0 x 0x 0 0 0 $ Lease Liability 0 x 0 x 0 x XOOO 0 0 0 c. Prepare the entries for Ashe on (1) January 1 to record commencement of the lease and the first lease payment, and (2) December 31 to record the two year-end adjusting entries.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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