Problem 21A-17 Sunland Inc. leased a new crane to Culver Construction under a 5-

Question

Problem 21A-17

Sunland Inc. leased a new crane to Culver Construction under a 5-year, non-cancelable contract starting January 1, 2017. Terms of the lease require payments of $45,000 each January 1, starting January 1, 2017. The crane has an estimated life of 7 years, a fair value of $220,000, and a cost to Sunland of $220,000. The estimated fair value of the crane is expected to be $40,000 (unguaranteed) at the end of the lease term. No bargain purchase or renewal options are included in the contract, and it is not a specialized asset. Both Sunland and Culver adjust and close books annually at December 31. Collectibility of the lease payments is probable. Culver’s incremental borrowing rate is 10%, and Sunland’s implicit interest rate of 10% is known to Culver.

(b)

Prepare all the entries related to the lease contract and leased asset for the year 2017 for the lessee and lessor, assuming Culver uses straight-line amortization for all similar leased assets, and Sunland depreciates the asset on a straight-line basis with a salvage value of $13,000. (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 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25125 and the final answer to 0 decimal places e.g. 58,972.)

Date

Account Titles and Explanation

Debit

Credit

Lessee’s Entries

1/1/17

(To record lease.)

1/1/17

(To record lease payment.)

12/31/17

(To record interest and amortization expense.)

Lessor’s Entries

1/1/17

(To record expenses.)

12/31/17

(To record depreciation.)

12/31/17

(To record lease revenue.)

Date

Account Titles and Explanation

Debit

Credit

Lessee’s Entries

1/1/17

(To record lease.)

1/1/17

(To record lease payment.)

12/31/17

(To record interest and amortization expense.)

Lessor’s Entries

1/1/17

(To record expenses.)

12/31/17

(To record depreciation.)

12/31/17

(To record lease revenue.)

Explanation / Answer

hey there !!

Before starting with the Question, lets list down the facts in the question to make it easy to solve :)

We will next identify whether the lease Is Operating lease or finance Lease.

       45,000

I hope the step by step solution is clear to you now...do let me know if you have any further queries....always happy to help :) All the best !!

Sunland Inc Leased its Crane To Culver Construction

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