Question
In: Accounting
On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2020, Cage Company contracts to lease equipment
for 5 years, agreeing to make a payment of $120,987 at the
beginning of each year, starting January 1, 2020. The leased
equipment is to be capitalized at $550,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Cage’s incremental
borrowing rate is 6%, and the implicit rate in the lease is 5%,
which is known by Cage. Title to the equipment transfers to Cage at
the end of the lease. The asset has an estimated useful life of 5
years and no residual value.
a/ Prepare the journal entries that Cage should record on January
1, 2020.
b/ Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020.
c/ Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made
d/ What amounts will appear on the lessee’s December 31, 2020, balance sheet relative to the lease contract?
e/ How would the value of the lease liability in part b change if Cage also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments?
Solutions
ekkarill92 answered 1 year agoRelated Solutions
On January 1, 2017, Cage Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2017, Cage Company contracts to lease equipment
for 5 years, agreeing to make a payment of $120,987 at the
beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $550,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Cage’s incremental
borrowing rate is 6%, and the implicit rate in the lease is 5%,
which is known by Cage....
On January 1, 2017, Cage Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2017, Cage Company contracts to lease equipment
for 5 years, agreeing to make a payment of $120,987 at the
beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $550,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Cage’s incremental
borrowing rate is 6%, and the implicit rate in the lease is 5%,
which is known by Cage....
On January 1, 2017, Cullumber Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2017, Cullumber Company contracts to lease
equipment for 5 years, agreeing to make a payment of $140,532 at
the beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $586,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Cullumber’s
incremental borrowing rate is 6%, and the implicit rate in the
lease is 10%, which is known by Cullumber....
On January 1, 2017, Teal Company contracts to lease equipment for 5 years, agreeing to make...
On January 1, 2017, Teal Company contracts to lease equipment
for 5 years, agreeing to make a payment of $164,292 at the
beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $674,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Teal’s incremental
borrowing rate is 6%, and the implicit rate in the lease is 11%,
which is known by Teal....
Problem 21A-2 b-f On January 1, 2017, Cage Company contracts to lease equipment for 5 years,...
Problem 21A-2 b-f
On January 1, 2017, Cage Company contracts to lease equipment
for 5 years, agreeing to make a payment of $120,987 at the
beginning of each year, starting January 1, 2017. The leased
equipment is to be capitalized at $550,000. The asset is to be
amortized on a double-declining-balance basis, and the obligation
is to be reduced on an effective-interest basis. Cage’s incremental
borrowing rate is 6%, and the implicit rate in the lease is 5%,
which is...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement
to lease equipment:
5-year lease term
Annual lease payments are $10,000
First payment is on January 1, 2020 and the other payments are
on 31 December each year
At the end of the lease the leased asset will revert to the
lessor
The asset’s economic life is estimated at 10 years
Winthrop could have obtained equivalent financing from its bank
at a rate of 5%
Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement
to lease equipment:
5-year lease term
Annual lease payments are $10,000
First payment is on January 1, 2020 and the other payments are
on 31 December each year
At the end of the lease the leased asset will revert to the
lessor
The asset’s economic life is estimated at 10 years
Winthrop could have obtained equivalent financing from its bank
at a rate of 5%
Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement
to lease equipment:
5-year lease term
Annual lease payments are $10,000
First payment is on January 1, 2020 and the other payments are
on 31 December each year
At the end of the lease the leased asset will revert to the
lessor
The asset’s economic life is estimated at 10 years
Winthrop could have obtained equivalent financing from its bank
at a rate of 5%
Winthrop’s fiscal year end...
On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment: 5-year lease...
On January 1, 2020, Winthrop Inc. entered into a lease agreement
to lease equipment:
5-year lease term
Annual lease payments are $10,000
First payment is on January 1, 2020 and the other payments are
on 31 December each year
At the end of the lease the leased asset will revert to the
lessor
The asset’s economic life is estimated at 10 years
Winthrop could have obtained equivalent financing from its bank
at a rate of 5%
Winthrop’s fiscal year end...
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....
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