Reference no: EM132589754
Hero Company entered into two lease agreements for the acquisition of equipment during 20x5:
Lease 1
Date of lease inception and first lease payment FV of. Jan 2, 20x5
FV of equipment. $120,000
Lease term 6 years
Useful life. 8 years
Residual value: Unguaranteed
End of lease term $11,000
end of useful life. $4,000
Interest rate implicit in lease. 5.5%
Lease 2
Date of lease inception and first lease payment July 1, 20x5
FV of equipment. $75,000
Lease term. 5 years
Useful life 10years
Residual value: Guaranteed
end of lease term $ 30,000
end of useful life $5000
Interest rate implicit in lease. 8%
- Annual maintenance costs payable on July 1 of each year. $5000
- Estimate of fair value of asset at the end of the lease term. $10000
- Lease payments made under each of these leases were debited to Administrative expenses. No other entries were made for the leases. For both leases, the lessor took into account the residual value at the end of the lease term when calculating the lease payments.
Required -
For each of the leases -
Question a) Prepare the adjusting journal entries at December 31, 20x5 for each of the two lease agreements.
Question b) Prepare the journal entries for the year ended December 31, 20x6.
Question c) Assume ASPE. Redo parts (a) and (b) for both leases.
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