In: Accounting
Problem 21-03
Coronado Steel Company, as lessee, signed a lease agreement for
equipment for 5 years,...
Problem 21-03
Coronado Steel Company, as lessee, signed a lease agreement for
equipment for 5 years, beginning December 31, 2020. Annual rental
payments of $57,000 are to be made at the beginning of each lease
year (December 31). The interest rate used by the lessor in setting
the payment schedule is 7%; Coronado’s incremental borrowing rate
is 9%. Coronado is unaware of the rate being used by the lessor. At
the end of the lease, Coronado has the option to buy the equipment
for $5,000, considerably below its estimated fair value at that
time. The equipment has an estimated useful life of 7 years, with
no salvage value. Coronado uses the straight-line method of
depreciation on similar owned equipment.
Click here to view factor tables.
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Prepare the journal entries, that Coronado should record on
December 31, 2020. (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 present value
factor calculations to 5 decimal places, e.g. 1.25124 and the final
answers to 0 decimal places, e.g. 58,971.)
Date
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Account Titles and Explanation
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Debit
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Credit
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December 31, 2020
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(To record leased asset and related liability.)
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(To record the first rental payment.)
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Prepare the journal entries, that Coronado should record on
December 31, 2021. (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.)
Date
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Account Titles and Explanation
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Debit
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Credit
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December 31, 2021
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(To record amortization.)
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(To record annual payment on lease liability.)
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Prepare the journal entries, that Coronado should record on
December 31, 2022. (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. 58,971.)
Date
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Account Titles and Explanation
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Debit
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Credit
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December 31, 2022
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(To record annual amortization on leased assets.)
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(To record annual payment on lease liability.)
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What amounts would appear on Coronado’s December 31, 2022,
balance sheet relative to the lease arrangement? (Round
answers to 0 decimal places, e.g. 58,971.)