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In: Accounting

Concord Corporation enters into a 6-year lease of equipment on December 31, 2016, which requires 6...

Concord Corporation enters into a 6-year lease of equipment on December 31, 2016, which requires 6 annual payments of $37,100 each, beginning December 31, 2016. In addition, Concord guarantees the lessor a residual value of $20,900 at the end of the lease. However, Concord believes it is probable that the expected residual value at the end of the lease term will be $10,900. The equipment has a useful life of 6 years.

Prepare Concords' December 31, 2016, journal entries assuming the implicit rate of the lease is 10% and this is known to Concord. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)

Date Account Titles and Explanation Debit Credit
December 31, 2016 Right-of-Use Asset
Lease Liability
(To record the lease liability)
December 31, 2016 Lease Liability 37,100
Cash 37,100
(To record lease payment)

I need help on finding both the credit and debit of Right-of-Use Asset and Lease Liability please. Please show work as well, Thank you! Be safe out there!

Solutions

Expert Solution

Date Account Titles and Explanation Debit Credit
31-Dec-16 Right-of-Use Asset $                         183,383.01
Lease Liability $ 183,383.01
(To record the lease liability)
31-Dec-16 Lease Liability 37,100
Cash 37,100
(To record lease payment)
Capitalized amount
$37,100 × Present value of an annuity due of 1 for 6 periods at 10%
Residual value = ($20900 -$10,900) x PV(6, 10%)
Capitalized amount
$37,100 × 4.79079
$                                        177,738.31
Residual value = ($20900  -10900) x .56447 $                                            5,644.70
Lessee’s lease liability/right-of use asset $                                        183,383.01

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