Question
In: Accounting
On January 1, 2021, Burrito Bill's leased restaurant equipment from Oval Corporation under a nine-year lease...
On January 1, 2021, Burrito Bill's leased restaurant equipment
from Oval Corporation under a nine-year lease agreement. The lease
agreement specifies annual payments of $75,000 beginning January 1,
2021, the beginning of the lease, and at each December 31
thereafter through 2028. The equipment was acquired recently by
Oval at a cost of $540,000 (its fair value) and was expected to
have a useful life of 13 years with no salvage value at the end of
its life. (Because the lease term is only 9 years, the asset does
have an expected residual value at the end of the lease term of
$150,000.) Oval seeks a 10% return on its lease investments. By
this arrangement, the lease is deemed to be an operating
lease.
Required:
(a) What will be the effect of the lease on Burrito Bill's
earnings for the first year? Show the separate components as well
as the total amount. (ignore taxes)
(b) What journal entries will the lessee record during 2021
relating to this lease?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease...
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Crescent Corporation under a nine-year lease agreement. The lease
agreement specifies annual payments of $25,000 beginning January 1,
2021, the beginning of the lease, and at each December 31
thereafter through 2028. The equipment was acquired recently by
Crescent at a cost of $180,000 (its fair value) and was expected to
have a useful life of 13 years with no salvage value at the end of
its life. (Because the...
At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease...
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Crescent Corporation under a nine-year lease agreement. The lease
agreement specifies annual payments of $25,000 beginning January 1,
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thereafter through 2028. The equipment was acquired recently by
Crescent at a cost of $180,000 (its fair value) and was expected to
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thereafter through 2028. The equipment was acquired recently by
Crescent at a cost of $207,000 (its fair value) and was expected to
have a useful life of 13 years with no salvage value at the end of
its life. (Because the...
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thereafter through 2028. The equipment was acquired recently by
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thereafter through 2028. The equipment was acquired recently by
Crescent at a cost of $207,000 (its fair value) and was expected to
have a useful life of 13 years with no salvage value at the end of
its life. Crescent records...
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