Identify the type of lease involved for the lessee

Assignment Help Financial Accounting

Reference no: EM13164205

Lessee Company leases heavy equipment on January 1, 2007 under a capital lease from Lessor Company with the following lease provisions:

The lease is non-cancelable and has a term of 10 years. The lease does not contain a renewal or bargain purchase option.

The annual rentals are $27,653.77, payable at the beginning of each year. The Lessee Company agrees to pay all executory costs. The interest rate implicit in the lease is 12%, which is known by Lessee Company. The residual value of the property at the end of 10 years is estimated to be zero.

The cost and fair value of the equipment to the lessor is $175,000. The lessor incurs no material initial direct costs. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.

Lessee's incremental borrowing rate is 15% and it uses the straight-line method to record depreciation on similar equipment. In 2007 the lessee pays insurance of $1,900, property taxes of $1,300, and maintenance of $600; and in 2008 the lessee pays insurance of $1,800, property taxes of $1,200, and maintenance of $500.

Required

1. Identify the type of lease involved for the lessee and the lessor, and give reasons for your classifications.
2. Prepare all the journal entries for both the lessee and the lessor for 2007 and 2008.

Reference no: EM13164205

Questions Cloud

State what is the frequency of a photon emitted : What is the frequency of a photon emitted from a hydrogen atom when an electron makes a transition

Human development happened first : Which of the following stages of human development happened first?

Explain what is the ph of a solution that mixes : What is the pH of a solution that mixes 30mL of 0.01M CH3COOH with 30mL 0.0075M NaCH3CO2? (Assume the volumes are additive

How many moles of oxygen gas are produced : Small samples of oxygen gas needed in the laboratory can be generated by any number of simple chemical reactions, such as 2KClO3(s) 2 KCl(s) + 3 O2(g) According to this balanced chemical equation, how many moles of oxygen gas are produced from the..

Identify the type of lease involved for the lessee : Identify the type of lease involved for the lessee and the lessor, and give reasons for your classifications and prepare all the journal entries for both the lessee and the lessor for 2007 and 2008.

What is the molarity of hno3 : a 25 ml of sample of HNO3 is neutralized by 32.1 ml of 0.150 M KOH(aq). What is the molarity of HNO3?

Florence and venice were at the center of the renaissance : Florence and Venice were at the center of the Renaissance. Discuss one of these two cities and the elements found there that represent the Renaissance. Discuss examples of leaders, influences, artists, art, and architecture.

State natural vs synthetic products : This product contains no chemicals." What does this really mean and how do you feel about "natural" vs "synthetic" products?

What volume of ammonia is obtained : if 5.0 of nitrogen at 12 degree Celsius and 1.30 atm pressure reacts with the same volume of hydrogen at the same temperature and pressure, what volume of ammonia is obtained at that temperature and pressure?

User Account

All Pages