LeBron Jarmes (LBJ) Corporation agrees on January 1, 2017, to lease equipment fr
ID: 2404445 • Letter: L
Question
LeBron Jarmes (LBJ) Corporation agrees on January 1, 2017, to lease equipment from Cavaliers, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare LBJ's journal entries on January 1, 2017 (commencement of the operating lease), and on December 31, 2017. Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate is 7%. (Credit account titles are automatically indented when the amount is entered. Do not indentnanually. 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.) Date Account Titles and Explanation Debit Credit 1/1/17 . Leased Asset Lease Liability (To record lease liability 1/117 Lease Expense 16000 Cash 16000 To record lease payment) 2/31/17 Deprecation Expense Accumulated Depreciation-Capital LeasesExplanation / Answer
Present Value of lease liability = Annual lease payment*PVAF(7%, 3 yrs) (in the beginning)
= $16,000*2.80802 = $44,928
Journal Entries (Amounts in $)
Date Account Titles and Explanation Debit Credit 1/1/17 Right-of-Use Asset 44,928 Lease Liability 44,928 (To record lease liability) 1/1/17 Lease Liability 16,000 Cash 16,000 (To record lease payment) 12/31/17 Lease Expense 16,000 Lease Liability [($44,928-$16,000)*7%] 2,025 Right-of-Use Asset ($16,000-$2,025) 13,975Related Questions
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