In: Accounting
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Kingbird Company. The following information relates to this agreement.
1. | The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
2. | The fair value of the asset at January 1, 2020, is $78,000. | |
3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $6,000, none of which is guaranteed. | |
4. | The agreement requires equal annual rental payments of $25,178 to the lessor, beginning on January 1, 2020. | |
5. | The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. | |
6. | Kingbird uses the straight-line depreciation method for all equipment. |
Click here to view factor tables.
(For calculation purposes, use 5 decimal places as
displayed in the factor table provided.)
Part 1
Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)
KINGBIRD COMPANY (Lessee) |
||||||||
---|---|---|---|---|---|---|---|---|
Date |
Annual Lease |
Interest on |
Reduction of Lease |
Lease Liability |
||||
1/1/20 |
$enter a dollar amount |
$enter a dollar amount |
$enter a dollar amount |
$enter a dollar amount |
||||
1/1/20 |
enter a dollar amount |
enter a dollar amount |
enter a dollar amount |
enter a dollar amount |
||||
1/1/21 |
enter a dollar amount |
enter a dollar amount |
enter a dollar amount |
enter a dollar amount |
||||
1/1/22 |
enter a dollar amount |
enter a dollar amount |
enter a dollar amount |
enter a dollar amount |
||||
$enter a total amount for this column |
$enter a total amount for this column |
$enter a total amount for this column |
Prepare all of the journal entries for the lessee for 2020 and 2021 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. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)
Date |
Account Titles and Explanation |
Debit |
Credit |
|
---|---|---|---|---|
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To record the lease |
enter a debit amount |
enter a credit amount |
|
enter an account title To record the lease |
enter a debit amount |
enter a credit amount |
||
(To record the lease) |
||||
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To record lease payment |
enter a debit amount |
enter a credit amount |
|
enter an account title To record lease payment |
enter a debit amount |
enter a credit amount |
||
(To record lease payment) |
||||
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To record interest expense |
enter a debit amount |
enter a credit amount |
|
enter an account title To record interest expense |
enter a debit amount |
enter a credit amount |
||
(To record interest expense) |
||||
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To record amortization of the right-of-use asset |
enter a debit amount |
enter a credit amount |
|
enter an account title To record amortization of the right-of-use asset |
enter a debit amount |
enter a credit amount |
||
(To record amortization of the right-of-use asset) |
||||
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To reverse interest expense |
enter a debit amount |
enter a credit amount |
|
enter an account title To reverse interest expense |
enter a debit amount |
enter a credit amount |
||
(To reverse interest expense) |
||||
|
enter an account title To record lease payment |
enter a debit amount |
enter a credit amount |
|
enter an account title To record lease payment |
enter a debit amount |
enter a credit amount |
||
enter an account title To record lease payment |
enter a debit amount |
enter a credit amount |
||
(To record lease payment) |
||||
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To record interest expense |
enter a debit amount |
enter a credit amount |
|
enter an account title To record interest expense |
enter a debit amount |
enter a credit amount |
||
(To record interest expense) |
||||
choose a transaction date1/1/2012/31/201/1/2112/31/21During 2020During 2021 1/1/2012/31/201/1/2112/31/21During 2020During 2021 |
enter an account title To record amortization of the right-of-use asset |
enter a debit amount |
enter a credit amount |
|
enter an account title To record amortization of the right-of-use asset |
enter a debit amount |
enter a credit amount |
||
(To record amortization of the right-of-use asset) |