Reference no: EM132419755
Problem: Cullumber Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $97,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Cullumber expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.
Required:
Question 1: What is the amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)
Question 2: What is the journal entry at commencement of the lease for Cullumber? (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Question 3: What is the journal entry at commencement of the lease for Sharrer? (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Question 4: What is the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Cullumber's implicit rate (Sharrer's incremental borrowing rate is 9%), and (2) Sharrer incurs initial directs costs of $14,000? (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)