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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.

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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

Account Titles and Explanation

Debit

Credit

December 31, 2020

(To record leased asset and related liability.)

(To record the first rental payment.)

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

Account Titles and Explanation

Debit

Credit

December 31, 2021

(To record amortization.)

(To record annual payment on lease liability.)

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

Account Titles and Explanation

Debit

Credit

December 31, 2022

(To record annual amortization on leased assets.)

(To record annual payment on lease liability.)

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.)

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