Question
In: Accounting
On December 31, 2019, Kingbird Corporation signed a 5-year, non-cancelable lease for a machine. The terms...
On December 31, 2019, Kingbird Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Kingbird to make annual payments of $8,508 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Kingbird uses the straight-line method of depreciation for all of its plant assets. Kingbird’s incremental borrowing rate is 5%, and the lessor’s implicit rate is unknown.
What type of lease is this?
| This is a/an select a type of lease |
Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.)
| Present value of the lease payments |
$enter the Present value of the lease payments in dollars |
To record the lease
| Account Title | Debit | Credit |
b. To record first lease payment
| Account Title | Debit | Credit |
c. To record amortization of right-of-use asset
| Account Title | Debit | Credit |
d. To record interest expense
| Account Title | Debit | Credit |
Solutions
Expert Solution
1.This is a capital lease since the lease term (5 years) is greater than 75% of the economic life (6 years) of the leased asset. The lease term is 831/3% (5 ÷ 6) of the asset’s economic life
2.Present value of lease payemnts
| Year | Cash Flow | PV Factor @5% | Discounted cash flow |
| 1 | 8,508.00 | 1 | 8,508.00 |
| 2 | 8,508.00 | 0.952381 | 8,102.86 |
| 3 | 8,508.00 | 0.907029 | 7,717.01 |
| 4 | 8,508.00 | 0.863838 | 7,349.53 |
| 5 | 8,508.00 | 0.822702 | 6,999.55 |
| Total | 38,677 |
Minimum value of lease payments=$38677
3.Journal Entries
a. To record the lease
| Account Title | debit | Credit |
| Leased Equipment | 38677 | |
| Lease Liability | 38677 |
b.To record first lease payment
| Account Title | debit | Credit |
| Lease Liability | 8508 | |
| Cash | 8508 |
c. To record amortization of right-of-use asset
| Account Title | debit | Credit |
| Depreciation Expense | 7735 | |
| Accumulated Depreciation - Capital Leases | 7735 |
* $38677 / 5= $7735
d. To record interest expense
| Account Title | debit | Credit |
| Interest Expense | 1508 | |
| Interest Payable | 1508 | |
| Lease Liability | 7000 | |
| Interest Payable | 1508 | |
| cash | 8508 |
* (38677-8508) x 0.05 = 1508
ekkarill92 answered 1 year agoRelated Solutions
On December 31, 2019, Kingbird Corporation signed a 5-year, non-cancelable lease for a machine. The terms...
On December 31, 2019, Kingbird Corporation signed a 5-year,
non-cancelable lease for a machine. The terms of the lease called
for Kingbird to make annual payments of $7,924 at the beginning of
each year, starting December 31, 2019. The machine has an estimated
useful life of 6 years and a $5,200 unguaranteed residual value.
The machine reverts back to the lessor at the end of the lease
term. Kingbird uses the straight-line method of depreciation for
all of its plant...
On December 31, 2019, Kingbird Corporation signed a 5-year, non-cancelable lease for a machine. The terms...
On December 31, 2019, Kingbird Corporation signed a 5-year,
non-cancelable lease for a machine. The terms of the lease called
for Kingbird to make annual payments of $8,508 at the beginning of
each year, starting December 31, 2019. The machine has an estimated
useful life of 6 years and a $4,700 unguaranteed residual value.
The machine reverts back to the lessor at the end of the lease
term. Kingbird uses the straight-line method of depreciation for
all of its plant...
On December 31, 2019, Larkspur Corporation signed a 5-year, non-cancelable lease for a machine. The terms...
On December 31, 2019, Larkspur Corporation signed a 5-year,
non-cancelable lease for a machine. The terms of the lease called
for Larkspur to make annual payments of $8,560 at the beginning of
each year, starting December 31, 2019. The machine has an estimated
useful life of 6 years and a $4,800 unguaranteed residual value.
The machine reverts back to the lessor at the end of the lease
term. Larkspur uses the straight-line method of depreciation for
all of its plant...
On December 31, 2019, Windsor Corporation signed a 5-year, non-cancelable lease for a machine. The terms...
On December 31, 2019, Windsor Corporation signed a 5-year,
non-cancelable lease for a machine. The terms of the lease called
for Windsor to make annual payments of $9,353 at the beginning of
each year, starting December 31, 2019. The machine has an estimated
useful life of 6 years and a $4,800 unguaranteed residual value.
The machine reverts back to the lessor at the end of the lease
term. Windsor uses the straight-line method of depreciation for all
of its plant...
(Show Work and Calculations) On December 31, 2016, Larkspur Corporation signed a 5-year, non-cancelable lease for...
(Show Work and Calculations)
On December 31, 2016, Larkspur Corporation signed a 5-year,
non-cancelable lease for a machine. The terms of the lease called
for Larkspur to make annual payments of $9,399 at the beginning of
each year, starting December 31, 2016. The machine has an estimated
useful life of 6 years and a $4,700 unguaranteed residual value.
The machine reverts back to the lessor at the end of the lease
term. Larkspur uses the straight-line method of depreciation for...
A lessor has signed a non-cancelable 5-year lease of a warehouse with a lessee: • The...
A lessor has signed a non-cancelable 5-year lease of a warehouse
with a lessee:
• The lessor believes that the lessee will make all 5 of the
beginning-of-the-year rentals of $62,018 each, i.e., the lessor
believes collection of the rentals is probable.
• The structure has an estimated useful life of 40 years, and at
the end of the lease, it will be returned to the lessor, who plans
to maintain it for storage of idled machinery.
• The warehouse...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...
Assume that on December 31, 2019, Kimberly-Clark
Corp. signs a 10-year, non-cancelable lease agreement to
lease a storage building from Sheffield Storage Company. The
following information pertains to this lease agreement.
1.
The agreement requires equal rental payments of $67,899
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$497,614.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $12,000, and an expected residual
value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...
Assume that on December 31, 2019, Kimberly-Clark
Corp. signs a 10-year, non-cancelable lease agreement to
lease a storage building from Sheffield Storage Company. The
following information pertains to this lease agreement.
1.
The agreement requires equal rental payments of $66,899
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$488,978.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...
Assume that on December 31, 2019, Kimberly-Clark
Corp. signs a 10-year, non-cancelable lease agreement to
lease a storage building from Sheffield Storage Company. The
following information pertains to this lease agreement.
1.
The agreement requires equal rental payments of $68,399
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$499,848.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
Assume that on December 31, 2019, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease...
Assume that on December 31, 2019, Kimberly-Clark
Corp. signs a 10-year, non-cancelable lease agreement to
lease a storage building from Sheffield Storage Company. The
following information pertains to this lease agreement.
1.
The agreement requires equal rental payments of $67,599
beginning on December 31, 2019.
2.
The fair value of the building on December 31, 2019 is
$494,051.
3.
The building has an estimated economic life of 12 years, a
guaranteed residual value of $9,000, and an expected residual value...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Describe a time when someone did not really listen to or understand a point you were...
- Enumerations Create an advanced enumeration to represent months (JANUARY – DECEMBER) called enuMonths Add internal properties...
- What is the minimum size of the automorphism group of a simple directed graph having more...
- The birthday paradox says that the probability (chance) that two people in a room will have...
- #include <iostream> #include "lib.hpp" using namespace std; int main() { // declare the bool bool...
- Why do we compare means instead of individual scores? for comparing average SAT test scores across...
- NPV Your division is considering two projects with the following cash flows (in millions): 0...
ADVERTISEMENT