question archive 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
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
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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. Click here to view factor tables. (b) Your answer is correct. Prepare the journal entries that Pronghorn should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter Ofor the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Date January 1, 2020 Right-of-Use Asset 638000 Lease Liability 638000 (To record the lease.) Lease Liability 153,002 Cash 153,002 (To record lease payment.) (c) Your answer is correct. Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2020 Amortization Expense 255200 Right-of-Use Asset 255200 (To record amortization of the leased asset.) December 31, 2020 Interest Expense 48500 Lease Liability 48500 (d) Your answer is correct. Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to O decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit January 1, 2021 Lease Liability 153002 Cash 153002 (e) Your answer is correct. What amounts will appear on the lessee's December 31, 2020, balance sheet relative to the lease contract? PRONGHORN COMPANY Balance Sheet (Partial) December 31, 2020 V Assets Noncurrent Assets Right-of-Use Asset $ 382800 Liabilities Current Liabilities Lease Liability $ 153002 Noncurrent Liabilities Lease Liability 380496 (f) 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? (Round answers to O decimal places, e.g. 5,275.) The lease liability $
