Question

Question 8 Nash Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Crane Airlines for a period of 10 years. The normal selling price of the equipment is $255,322, and its unguaranteed residual value at the end of the lease term is estimated to be $20,600. Crane will pay annual payments of $36,600 at the beginning of each year. Nash incurred costs of $179,000 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Nash has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Crane Airlines has an incremental borrowing rate of 10%. Click here to view factor tables. Discuss the nature of this lease in relation to the lessee. This is a finance lease . Compute the amount of the initial lease liability. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) The amount of the initial lease liability $ SHOW LIST OF ACCOUNTS Prepare a 10-year lease amortization schedule. (Round answers to 0 decimal places e.g. 58,970.) CRANE AIRLINES (Lessee) Lease Amortization Schedule (Annuity-due basis and URV) Beginning of Year Annual Lease Payment Interest on Lease Liability Reduction of Lease Liability Lease Liability Initial PV $ 0 $ 0 $ $ 1 36600 0 36600 2 36600 3 36600 4 36600 5 36600 6 36600 7 36600 8 36600 9 36600 10 36600 0 $ 36600 $ $ SHOW LIST OF ACCOUNTS Prepare all of the lessee’s journal entries for the first year. Assume straight-line depreciation. (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. 58,970.) Account Titles and Explanation Debit Credit Right-of-Use Asset Lease Liability (To record the lease.) Lease Liability 36600 Cash 36600 (To record the first rental payment.) Interest Expense Lease Liability (To record accrual of annual interest on lease obligation.) Amortization Expense Right-of-Use Asset.

Answer 1