The Lessor is Supreme Asset Management Company (SAMC) and the lessee is Bogue Distributors Limited (BDL). The equipment reverts to SAMC upon expiration of the lease agreement. Three Payments are due to SAMC in the amount of $180,000 per year beginning December 31, 2017. An additional sum of $12,000 is to be paid annually by BDL for insurance. BDL guarantees a $20,000 residual value on December 31, 2019 to SAMC. The leased asset is expected to also have a $20,000 salvage value on December 31, 2019; therefore, the asset should be depreciated down to the $20,000 expected residual value. The lessee's incremental borrowing rate is 14% (and the lessor's implicit rate is 12%). PVIFA 14% | PVIFA 12% Year 1 0.8772 0.8929 Year 2 0.7695 0.7972 Year 3 0.6750 0.7118

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
A 3-year lease is initiated on January 1, 2017 for equipment with an expected useful life of 6 years.
The Lessor is Supreme Asset Management Company (SAMC) and the lessee is Bogue Distributors
Limited (BDL). The equipment reverts to SAMC upon expiration of the lease agreement. Three
Payments are due to SAMC in the amount of $180,000 per year beginning December 31, 2017.
An additional sum of $12,000 is to be paid annually by BDL for insurance. BDL guarantees a
$20,000 residual value on December 31, 2019 to SAMC. The leased asset is expected to also have
a $20,000 salvage value on December 31, 2019; therefore, the asset should be depreciated down
to the $20,000 expected residual value. The lessee's incremental borrowing rate is 14% (and the
lessor's implicit rate is 12%).
PVIFA 14%
PVIFA 12%
0.8772
0.8929
| 0.7972
0.7118
Year 1
Year 2
0.7695
Year 3
0.6750
Required:
Record all the journal entries in the books of the BDL over the life of the lease (supported
by the relevant calculations).
b)
Transcribed Image Text:A 3-year lease is initiated on January 1, 2017 for equipment with an expected useful life of 6 years. The Lessor is Supreme Asset Management Company (SAMC) and the lessee is Bogue Distributors Limited (BDL). The equipment reverts to SAMC upon expiration of the lease agreement. Three Payments are due to SAMC in the amount of $180,000 per year beginning December 31, 2017. An additional sum of $12,000 is to be paid annually by BDL for insurance. BDL guarantees a $20,000 residual value on December 31, 2019 to SAMC. The leased asset is expected to also have a $20,000 salvage value on December 31, 2019; therefore, the asset should be depreciated down to the $20,000 expected residual value. The lessee's incremental borrowing rate is 14% (and the lessor's implicit rate is 12%). PVIFA 14% PVIFA 12% 0.8772 0.8929 | 0.7972 0.7118 Year 1 Year 2 0.7695 Year 3 0.6750 Required: Record all the journal entries in the books of the BDL over the life of the lease (supported by the relevant calculations). b)
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Lease accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education