SawPro Company, owned and operated by Heather Moore, opened for business in 2015. The company sells...

SawPro Company, owned and operated by Heather Moore, opened for business in 2015. The company sells a single model of commercial grade chain saws that it purchases from the manufacturer. Heather’s customers, primarily businesses offering landscaping and tree-services, purchase saws on account, with payment typically due within thirty-days.

The following transactions occurred during the calendar year ending December 31, 2018:

Acquired equipment that automated sharpening chain saw blades. Instead of paying cash, Heather signed an agreement with a lease financing company. The equipment was delivered, installed, and ready for service on March 1, 2018. Terms of the lease require twenty-four equal monthly payments of $270, with the first payment due at signing on March 1st. The annual rate is 4.75 percent. Heather made all payments on the dates required. The fair value of the equipment is $6,500 with an expected service life of thirty months. Heather has the option to purchase the equipment for $250 at the end of the lease term; she expects to exercise that option. (Note: use the old rule percent’s to determine whether the lease is financing or operating).

Post a journal entry of this transaction!

Solutions

Expert Solution

The given lease is a finance lease on the following grounds-

a) the leased equipment reverts back to the lessee at the option of the lessee at the end of lease term.
b) the present value of lease payments made to the lessor is substantially equal to the fair value of the equipment on the date of purchase of equipment.

ekkarill92 answered 3 weeks ago

Next > < Previous

Related Solutions

McDonald’s runs two business models. Some McDonald’s restaurants are wholly-owned and operated by the parent company,...

McDonald’s runs two business models. Some McDonald’s restaurants are wholly-owned and operated by the parent company, while some McDonald’s restaurants follow a franchise model i.e. the parent company charges a franchise fee and the restaurant is then independently owned and operated by the franchise owner. Empirical evidence suggests that McDonald's restaurants that are wholly-owned by the parent company (the first type described above) charge lower prices than the prices charged by independent franchises of the company (the second type described...

The Moore Division of Block C Enterprises manufactures and sells specialty semiconductors. Moore sells 1350 of...

The Moore Division of Block C Enterprises manufactures and sells specialty semiconductors. Moore sells 1350 of one of these specialized semiconductors each month at a price of $1200 each. Variable costs amount to $1,000,000, and fixed costs are $400,000. Currently Moore has a defect rate of 6 percent (which are chips returned by customers, scrapped, or replaced). Note that the variable costs include the cost of producing the defective chips. If the defect rate can be reduced to zero, calculate...

The Moore Division of Block C Enterprises manufactures and sells specialty semiconductors. Moore sells 1350 of...

Good Note Company specializes in the repair of music equipment and is owned and operated by...

Good Note Company specializes in the repair of music equipment and is owned and operated by Robin Stahl. On November 30, 2019, the end of the current year, the accountant for Good Note prepared the following trial balances: Good Note Company Trial Balance November 30, 2019 Unadjusted Adjusted Debit Balances Credit Balances Debit Balances Credit Balances Cash 29,210 29,210 Accounts Receivable 83,690 83,690 Supplies 8,680 2,690 Prepaid Insurance 11,050 2,100 Equipment 428,380 428,380 Accumulated Depreciation—Equipment 72,240 81,630 Automobiles 87,640 87,640...

Good Note Company specializes in the repair of music equipment and is owned and operated by...

Good Note Company specializes in the repair of music equipment and is owned and operated by Robin Stahl. On November 30, 2019, the end of the current year, the accountant for Good Note prepared the following trial balances: Good Note Company Trial Balance November 30, 2019 Unadjusted Adjusted Debit Balances Credit Balances Debit Balances Credit Balances Cash 31,080 31,080 Accounts Receivable 89,040 89,040 Supplies 9,240 2,860 Prepaid Insurance 11,760 2,230 Equipment 421,100 421,100 Accumulated Depreciation—Equipment 76,860 86,850 Automobiles 93,240 93,240...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019, the end of the current year, Pitman Company's accounting clerk prepared the following unadjusted trial balance: Pitman Company Unadjusted Trial Balance October 31, 2019 Debit Balances Credit Balances Cash 3,610 Accounts Receivable 32,760 Prepaid Insurance 6,110 Supplies 1,670 Land 96,330 Building 253,810 Accumulated Depreciation—Building 117,710 Equipment 115,760 Accumulated Depreciation—Equipment 83,840 Accounts Payable 10,270 Unearned Rent 5,830 Jan Pitman, Capital 268,800 Jan Pitman,...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019 the end of the current year, Pitman Company’s accounting clerk prepared the following unadjusted trial balance: Pitman Company UNADJUSTED TRIAL BALANCE October 31, 2019 ACCOUNT TITLE DEBIT CREDIT 1 Cash 7,420.00 2 Accounts Receivable 38,360.00 3 Prepaid Insurance 7,320.00 4 Supplies 2,390.00 5 Land 117,000.00 6 Building 154,900.00 7 Accumulated Depreciation-Building 85,745.00 8 Equipment 130,900.00 9 Accumulated Depreciation-Equipment 97,550.00 10 Accounts Payable...

Sears Editing Company is a small editorial services company owned and operated by Deloris Sears. On...

Sears Editing Company is a small editorial services company owned and operated by Deloris Sears. On January 31, 20Y1, the end of the current year, Sears Editing Company’s accounting clerk prepared the following unadjusted trial balance: Sears Editing Company UNADJUSTED TRIAL BALANCE January 31, 20Y1 ACCOUNT TITLE DEBIT CREDIT 1 Cash 7,655.00 2 Accounts Receivable 38,345.00 3 Prepaid Insurance 7,075.00 4 Supplies 2,290.00 5 Land 113,500.00 6 Building 149,450.00 7 Accumulated Depreciation-Building 87,905.00 8 Equipment 133,250.00 9 Accumulated Depreciation-Equipment 96,435.00...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019, the end of the current year, Pitman Company's accounting clerk prepared the following unadjusted trial balance: Pitman Company Unadjusted Trial Balance October 31, 2019 Debit Balances Credit Balances Cash 4,810 Accounts Receivable 43,680 Prepaid Insurance 8,140 Supplies 2,220 Land 128,440 Building 311,710 Accumulated Depreciation—Building 156,940 Equipment 154,350 Accumulated Depreciation—Equipment 111,780 Accounts Payable 13,700 Unearned Rent 7,770 Jan Pitman, Capital 331,700 Jan Pitman,...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019 the end of the current year, Pitman Company’s accounting clerk prepared the following unadjusted trial balance: Pitman Company UNADJUSTED TRIAL BALANCE October 31, 2019 ACCOUNT TITLE DEBIT CREDIT 1 Cash 7,655.00 2 Accounts Receivable 38,345.00 3 Prepaid Insurance 7,075.00 4 Supplies 2,290.00 5 Land 113,500.00 6 Building 149,450.00 7 Accumulated Depreciation-Building 87,905.00 8 Equipment 133,250.00 9 Accumulated Depreciation-Equipment 96,435.00 10 Accounts Payable...

Subjects