question archive On 1st of January 1, 2020, Caterpillar Company leased a machine to Mark Company
On 1st of January 1, 2020, Caterpillar Company leased a machine to Mark Company
Subject:AccountingPrice:2.84 Bought3
On 1st of January 1, 2020, Caterpillar Company leased a machine to Mark Company. More information concerning that lease are provided below:
The fair value of the machine was $ 314, 914.
The lease agreement specifics annual rental payment beginning of January 1, 2020.
The lease term is 5 years which is equal to the useful life of the machine.
The rental payments are $ 90,000 each January 1 including executory cost of $ 12,000 (tax) which is paid directly to third party.
Caterpillar company sets the annual rental to earn a rate of return on its investment of 12% per year.
The lease capitalized amount is $ 314,914 (present value of total lease payments). Assume the lease is finance lease.
Required
(a) Record the entries made by both lessee and lessor when leasing the asset
(January 1,2020
(b) Prepare amortization table for the first two years (up to January 1, 2021)
(c) Record the entries made by both lessee and lessor for payment of lease rental on January 1, 2020
(d) Record the depreciation entry for lessee and lessor. Depreciation method to be used is Straight line.
(e) Record the entry for payment of lease rental on January 1 2021 by lessee and lessor
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(a) Record the entries made by both lessee and lessor when leasing the asset
(January 1,2020
Journal entry in the book lessee - Mark Company
|
Date |
Accounts |
Debit |
Credit |
|
Jan. 1 2020 |
Lease Assets |
$314914 |
|
|
Lease Liability |
$314914 |
Journal entry in the book lessor - Caterpillar Company
|
Date |
Accounts |
Debit |
Credit |
|
Jan. 1 2020 |
Lease Receivable |
$314914 |
|
|
Machine |
$314914 |
(b) Prepare amortization table for the first two years (up to January 1, 2021)
|
Year |
Beginning Balance |
Interest |
Lease payment |
Principal |
Ending balance |
|
(a) |
(b) |
(c=b*12%) |
(d) |
(e=d-c) |
(f=b-e) |
|
Jan. 1 2020 |
3,14,914 |
37,790 |
78,000 |
40,210 |
2,74,704 |
|
Jan. 1 2021 |
2,74,704 |
32,964 |
78,000 |
45,036 |
2,29,668 |
(c) Record the entries made by both lessee and lessor for payment of lease rental on January 1, 2020
Journal entry in the book lessee - Mark Company
|
Date |
Accounts |
Debit |
Credit |
|
Jan. 1 2020 |
Interest expense |
$37790 |
|
|
Lease Liability |
$40210 |
||
|
Cash |
$78,000 |
Journal entry in the book lessee - Caterpillar Company
|
Date |
Accounts |
Debit |
Credit |
|
Jan. 1 2020 |
Cash |
$78000 |
|
|
Lease Receivable |
$37790 |
||
|
Interest revenue |
$40210 |
(d) Record the depreciation entry for lessee and lessor. Depreciation method to be used is Straight line.
Depreciation expenses = 314914 / 5 = $62983
Journal entry in the book lessee - Mark Company
|
Date |
Accounts |
Debit |
Credit |
|
Dec. 31 2020 |
Depreciation expenses |
$62983 |
|
|
Accumulated depreciation - Lease Assets |
$62983 |
No entry in the book of Lessor
(e) Record the entry for payment of lease rental on January 1 2021 by lessee and lessor
Journal entry in the book lessee - Mark Company
|
Date |
Accounts |
Debit |
Credit |
|
Jan. 1 2021 |
Interest expense |
$37790 |
|
|
Lease Liability |
$40210 |
||
|
Cash |
$78,000 |
Journal entry in the book lessee - Caterpillar Company
|
Date |
Accounts |
Debit |
Credit |
|
Jan. 1 2021 |
Cash |
$78000 |
|
|
Lease Receivable |
$37790 |
||
|
Interest revenue |
$40210 |
