Question
In: Accounting
Garza Company enters into a 5 year capital lease as the lease on Jan 1st 2020....
Garza Company enters into a 5 year capital lease as the lease on Jan 1st 2020. The fair value of the asset is $150,000, and the annual lease payments are $33,594 payable each January 1st. Garza uses the straight line method for depreciation. Make the journal entry for the first 2 years.
Solutions
Expert Solution
| Fair value of Asset | 150000 |
| Total Lease Payment | 167970 |
| Interest Amount | 17970 |
| Calculation of interest rate | ||||
| Let Inerest rate is 6% | ||||
| Capital Lease Accounting – Interest Charges | ||||
| Opening | Interest 6% | Payment | Closing | |
| Year 1 | 1,50,000 | -33,594 | 1,16,406 | |
| Year 2 | 1,16,406 | 6,984 | -33,594 | 89,796 |
| Year 3 | 89,796 | 5,388 | -33,594 | 61,590 |
| Year 4 | 61,590 | 3,695 | -33,594 | 31,692 |
| Year 5 | 31,692 | 1,901 | -33,594 | -1 |
Depreciation = Asset Value / Term = 150000 / 5 = 30,000 per year Depreciation = 150000 / 5 = 30000 per year
| Date | Journal | Debit | Credit | |
| 01-01-2020 | Assets | 150000 | ||
| Lease Liability | 150000 | |||
| 01-01-2020 | Lease Liability | 33594 | ||
| Cash | 33594 | |||
| 31-12-2020 | Depreciation | 30000 | ||
| Accumulated Depreciation | 30000 | |||
| 01-01-2021 | Lease Liability | 26610 | ||
| Interest | 6984 | |||
| Cash | 33594 | |||
| 31-12-2021 | Depreciation | 30000 | ||
| Accumulated Depreciation | 30000 |
ekkarill92 answered 1 year agoRelated Solutions
On April 1, 2020, Benintendi enters into a 5-year, non-cancelable lease with Fenway Inc for use...
On April 1, 2020, Benintendi enters into a 5-year,
non-cancelable lease with Fenway Inc for use of a hitting machine
requiring payments of $20,000 every March 31 (1st
payment is due today). Fenway requires that the asset at the end of
5 years is returned with a guaranteed residual value of no less
than $9,006.
The asset has a fair value of $100,000 and an 8-year useful
life. Benintendi’s incremental borrowing cost is 6.5% but Fenway
seeks a 4% return...
Jay Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment....
Jay Company, as lessee, enters into a lease agreement on January
1, 2020, to lease equipment. The following data are relevant to the
lease agreement.
- The term of the noncancellable lease is three years, with no
renewal option. Payments of $12,000 are due on January 1, of each
year.
- The fair value of the equipment on January 1, 2020 is $35,000.
The equipment has an estimated economic life of five years, and an
unguarenteed residual value of $4,000....
Jay Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment....
Jay Company, as lessee, enters into a lease agreement on January
1, 2020, to lease equipment. The following data are relevant to the
lease agreement.
- The term of the noncancellable lease is three years, with no
renewal option. Payments of $12,000 are due on January 1, of each
year.
- The fair value of the equipment on January 1, 2020 is $35,000.
The equipment has an estimated economic life of five years, and an
unguarenteed residual value of $4,000....
Krause Company on January 1, 2020, enters into a five-year noncancelable lease for equipment having an...
Krause Company on January 1, 2020, enters into a five-year
noncancelable lease for equipment having an estimated useful life
of 6 years and a fair value to the lessor, Daly Corp., at the
inception of the lease of $4,000,000. The cost to manufacture the
equipment was $3,000,000. Daly’s required rate of return is 8%.
Krause’s incremental borrowing rate is 10% and is aware of Daly’s
required rate of return. Krause uses the straight-line method to
amortize its assets. Daly is...
Company A (the lessee) enters into a 5-year, noncancelable lease with Company B for non-specialized manufacturing...
Company A (the lessee) enters into a 5-year, noncancelable lease
with Company B for non-specialized manufacturing equipment to be
used in its operations. Information related to the lease are as
follows:
Fair
value of
equipment $800,000
Company
A’s incremental borrowing
rate 5%
Company
B’s implicit rate
(known) 4.5%
Residual
of equipment at end of lease
(guaranteed
by Company
A) $100,000
Economic
life of
equipment 8
years
Lease
payment schedule
At
inception $ 40,000
At
end of year
1 $ 65,000
At
end of year
2 $ 80,000
At
end of year...
Company A (the lessee) enters into a 5-year, noncancelable lease with Company B for non-specialized manufacturing...
Company A (the lessee) enters into a 5-year, noncancelable lease
with Company B for non-specialized manufacturing equipment to be
used in its operations. Information related to the lease are as
follows:
Fair
value of
equipment $800,000
Company
A’s incremental borrowing
rate 5%
Company
B’s implicit rate
(known) 4.5%
Residual
of equipment at end of lease
(guaranteed
by Company
A) $100,000
Economic
life of
equipment 8
years
Lease
payment schedule
At
inception $ 40,000
At
end of year
1 $ 65,000
At
end of year
2 $ 80,000
At
end of year...
On Jan 1, 2017, Mickey Inc enters into a 7 year, non cancellable lease with Minnie...
On Jan 1, 2017, Mickey Inc enters into a 7 year, non cancellable
lease with Minnie Ltd for machinery having an estimated useful life
of 9 years, and a fair value of $4,300,000. Minnie's implicit rate
is 6%. Mickey using the straight-line depreciation method to
depreciate assets. Mickey will make annual lease payments on Jan. 1
of each year. The lease includes a guarantee by Mickey Inc. that
Minnie Ltd will realize $100,000 for selling the asset at the
expiration...
Daly bhd. is a leasing company that enters into 5-year lease (that does not allow cancellation)...
Daly bhd. is a leasing company that enters into 5-year lease
(that does not allow cancellation) for equipment with Krause Bhd.
on 1 january 2019. The equipment has an estimated life of 6 years
and a fair value of RM 1,800,00 at the commencement of the lease.
in addition, the leased equipment is of a specialized nature such
that only Krause Bhd. can use the equipment without major
modifications being made. The lease contains the following
provisions:
rental payments of...
On January 1st you sold and purchased a capital lease for a 10 year period. The...
On January 1st you sold and purchased a capital lease for a 10
year period. The yearly annuity due payments were $100,000 with
guaranteed salvage value of $75,000 and bargain purchase options of
$100,000. The discount rate s 6%. The title has transferred and the
transaction qualifies for capital purchase. Prepare a journal
entries for 10 years for both buyer and seller as a sales type
lease. Cost of goods sold is 75% of sales price.
Poe Inc. enters into a lease agreement as lessor on January 1, 2020, to lease a...
Poe Inc. enters into
a lease agreement as lessor on January 1, 2020, to lease a check-in
kiosk to Nat Airlines. The normal selling price is $991,355. The
term of the noncancelable lease is ten
years and payments
are required at the beginning of each year. The following
information relates to this agreement:
Nat Airlines has the option to purchase the kiosk for $5,000
when the lease expires at which time the fair value is expected to
be $30,000.
The...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 3. What is the difference between reliability and validity? Can a test have one without the...
- A machine is designed to fill 16-ounce bottles of shampoo. When the machine is working properly,...
- Explain four problematic situations that will make determining incremental cash flows difficult.
- • Answer the following questions in a single document using the material and information given to...
- Consider the following experiment with 100 grams of a pure substance in a variable-volume cylindrical container....
- Choose a large company and learn about its culture, structure, leadership, product or service, and market...
- Discuss the concept of CRM and why is it increasingly more important to personal selling
ADVERTISEMENT