Reference no: EM133053039
Question - ABC Company, as lessee, enters into a lease agreement on January 1, 2017, to lease equipment. The following data are relevant to the lease agreement.
The term of the noncancellable lease is three years, with no renewal option. Payments of $16,000 are due on January 1, of each year.
The fair value of the equipment on January 1, 2017 is $50,000. The equipment has an estimated economic life of five years, and an estimated residual value of $0.
The equipment reverts back to the lessor at the termination of the lease and is expected to have use to the lessor.
The lessee is aware that the lessor used an implicit rate of 4%.
Required -
1. Indicate the type of lease ABC has entered into.
2. Prepare the journal entries on ABC's books related to the lease agreement for the following dates: (round all amounts to the nearest dollar. Include a partial amortization schedule) a. January 1, 2017 b. December 31, 2017 c. January 1, 2018.
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