Question

Concord Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment’s 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased.

Prepare Concord’s journal entries on January 1, 2020, and December 31, 2020. Assume the annual lease payment is $48,000 at the beginning of each year, and Concord’s incremental borrowing rate is 7%, which is the same as the lessor’s implicit rate. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

Click here to view factor tables.

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/20
	(To record lease liability)
1/1/2012/31/20
	(To record lease payment)
1/1/2012/31/20

Answer 1

Date	Accounts Title and Explanation	Debit $	Credit $
01 January 2020	Right of use Asset(48,000*2.8080)	134,784
	lease liability		134,784
	(Being lease liability recorded)
01 January 2020	lease liability	48,000
	Cash/bank		48,000
	(Being lease instalment recoded)
31 December 2020	Lease expense	48,000
	Lease Liability( (134,784-48,000)*.07)		6,075
	Right of use Asset		41,925
	(Being rent accural recorded)