Shamrock Company leased equipment from Costner Company, beginning on December 31

Question

Shamrock Company leased equipment from Costner Company, beginning on December 31, 2016. The lease term is 7 years and requires equal rental payments of $38,869 at the beginning of each year of the lease, starting on the commencement date (December 31, 2016). The equipment has a fair value at the commencement date of the lease of $230,000, an estimated useful life of 7 years, and no estimated residual value. The appropriate interest rate is 6%. Prepare Shamrock's 2016 and 2017 journal entries, assuming Shamrock depreciates similar equipment it owns on a straight-line basis. (Credit account titles are automatically indented when the 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 O decimal places, e.g.5,27s) Date Account Titles and Explanation Debit Credit 12/31/16 Leased Equipment Lease Liability 230000.00 To record lease liability) 12/31/16 Lease Liability 38869.00 Cash 38869.00 To record lease payment) 12/31/17 Lease Liability 27401.00 Interest Expense 11468 Cash 38869.00

Explanation / Answer

Replace lease equipment with Right-of-use asset/Right-of-use equipment

12/31/2107

Amortization expense 32857 Right-of-use equipment/asset 32857

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