In: Accounting
LeBron James (LBJ) Corporation agrees on January 1, 2020, to
lease equipment from Wildhorse, Inc. for 3 years. The lease calls
for annual lease payments of $21,000 at the beginning of each year.
The lease does not transfer ownership, nor does it contain a
bargain purchase option, and is not a specialized asset. In
addition, the useful life of the equipment is 10 years, and the
present value of the lease payments is less than 90% of the fair
value of the equipment.
Prepare LBJ’s journal entries on January 1, 2020 (commencement of
the operating lease), and on December 31, 2020. Assume the implicit
rate used by the lessor is unknown, and LBJ’s incremental borrowing
rate is 4%. (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. 5,275. 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 |
|||
Please find below table useful to compute desired results: -
End results would be as follows: -