Question

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Cullumber Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of    each year, beginning with January 1, $121,506 Residual value of equipment at end of lease term,    guaranteed by the lessee $45,000 Expected residual value of equipment at end of lease term $40,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $635,000 Lessor’s implicit rate 8 % Lessee’s incremental borrowing rate 8 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

CULLUMBER COMPANY (Lessee) Lease Amortization Schedule Date Annual Lease Payment Plus GRV Interest on Liability Reduction of Lease Liability Lease Liability 1/1/20 $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places $enter a dollar amount rounded to 0 decimal places 1/1/20 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places 1/1/21 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places 1/1/22 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places 1/1/23 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places 1/1/24 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places 1/1/25 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places 12/31/26 enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places enter a dollar amount rounded to 0 decimal places $enter a total amount $enter a total amount $enter a total amount

Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit

Suppose Cullumber received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? Right-of-use asset ???????? lease liability ???????????? What if Cullumber prepaid rent of $5,000 to Faldo? Right-of-use asset ???????? lease liability ????????????

Answer 1

Answer:

Date	General Journal	Debit	Credit
1/1/2020	Right of use asset	$ 609,795
	Lease liability		$ 609,795
1/1/2020	Lease liability	121,506
	Cash		121,506
12/31/2020	Depreciation expense	101,633
	Accumulated depreciation-Capital lease		101,633
1/1/2021	Lease liability	121,506
	Cash		121,506
12/31/2021	Depreciation expense	101,633
	Accumulated depreciation-Capital lease		101,633
12/31/2021	Interest expense	39,063
	Interest payable		39,063