Reference no: EM132743803

Problem - On January 1, 2020, Pronghorn Company contracts to lease equipment for 5 years, agreeing to make a payment of $153,002 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $638,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Pronghorn's incremental borrowing rate is 6%, and the implicit rate in the lease is Unresolved%, which is known by Pronghorn. Title to the equipment transfers to Pronghorn at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

Required -

1. Prepare the journal entries that Pronghorn should record on January 1, 2020.

2. Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020.

3. What amounts will appear on the lessee's December 31, 2020.

4. How would the value of the lease liability in part b change if Pronghorn also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments?