Lessee company leases heavy equipment on january 1 2007

Assignment Help Financial Accounting

Reference no: EM13376184

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: EM13376184

Questions Cloud

Large mart has previously attempted to develop a study : large mart has previously attempted to develop a study pillow which would have allowed students to upload study

Reichenbach co organized in 2011 has set up a single : reichenbach co. organized in 2011 has set up a single account for all intangible assets. the following summary

Questionnbsp dr catscan is an ophthalmologist who in : questionnbsp dr catscan is an ophthalmologist who in addition to prescribing glasses and contact lenses performs

Question 1probability and statistical quality controlshow : question 1probability and statistical quality controlshow all calculationsreasoninga an unbiased coin is tossed twice.

Lessee company leases heavy equipment on january 1 2007 : lessee company leases heavy equipment on january 1 2007 under a capital lease from lessor company with the following

You have been assigned to evaluate the stock market : you have been assigned to evaluate the stock market performance of firms who manufacture accounting software

Chatter corporation operates in an industry that has a high : chatter corporation operates in an industry that has a high rate of bad debts. before any year-end adjustments the

Question the final report that john wants you to prepare : question the final report that john wants you to prepare for him is for the audit client malos ojos limited mo who

Question 10 of total assessment you have been given : question 10 of total assessment you have been given another client ctl limited to audit. ctl limited ctl sells clay

User Account

All Pages