Question

I NEED CALCULATION/PROCESSES TO UNDERSTAND IT.

Company A, as lessee, enters into a lease agreement on January 1, 2017, for equipment. The following data are relevant to the lease agreement:

1.   The term of the noncancelable lease is 4 years, with no renewal option. Payments of $845,378 are due on January 1 of each year.

2.   The fair value of the equipment on January 1, 2017 is $3,200,000. The equipment has an economic life of 6 years with an unguaranteed residual value of $200,000.

3. Company A depreciates similar machinery it owns on the straight-line basis.

4.   The lessee pays all executory costs.

5.   An implicit rate of 8% was used in computing the lease payments.

Instructions:

1. Indicate the type of lease Company A has entered into and what accounting treatment is applicable. Show your response to each criterion.

(b)    Prepare the journal entries on Company A's books that relate to the lease agreement for the following dates: (Round all amounts to the nearest dollar.)

        1.    January 1, 2017.

        2.    December 31, 2017.

        3.    January 1, 2018.

        4.    December 31, 2018.

        5.    January 1, 2019.

Date	Description	Debit	Credit

(c) If this was an operating lease, what would the journal entry be on January 1, 2017 and December 31, 2017?

Date	Description	Debit	Credit

Answer 1

all parts are answered