Option #1: Lease
Complete the following questions. In addition to answering the
items below, you must submit an analysis of the assignment. Analyze
the specific outcomes and write an analysis directed toward the
team at Coco Inc. describing what the numbers mean and how they
relate to the business. Submit journal entries in an Excel file and
written segments in an MS Word document. For written answers,
please make sure your responses are well-written, formatted per
CSU-Global Guide to Writing and APA (Links to an external site.)
and have proper citations, where applicable.
Assume that the following facts pertain to a non-cancelable
lease agreement between Coco Inc. and Bubs Corp, a Lessee.
Inception date
January 1, 2018
Residual value of equipment at end of lease term,
unguaranteed
$100,000
Lease term
6 years
Economic life of leased equipment
8 years
Fair value of asset at January 1, 2017
$800,000
Lessor’s implicit rate
12%
Lessee’s incremental borrowing rate
10%
The lessee assumes responsibility for all executory costs,
which are expected to amount to $4,000 per year. The asset will
revert to the lessor at the end of the lease term. The lessee uses
the straight-line depreciation method for all equipment.
1. Using the spreadsheet Lease Amort Schedule, prepare an
amortization schedule that would be suitable for the lessee for the
lease term.
2. Using the spreadsheet Journal Entries, prepare the journal
entries for the lessee for 2018 and 2019 to record the lease
agreement and all expenses related to the lease. Assume the
Lessee’s annual accounting period ends on December 31 and that
reversing entries are used when appropriate.
3. Prepare journal entries for the lessor of the
transaction.