Problem 21A-2 b-f On January 1, 2017, Cage Company contracts to lease equipment

Question

Problem 21A-2 b-f

On January 1, 2017, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage’s incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.  Prepare the journal entries that Cage should record on January 1, 2017

January 1,2017 (to record the lease)

  

(to record payment of lease)

Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2017

December 31,2017 (to record amorizitaiton of leased asset)

December 31,2017

Prepare the journal entry to record the lease payment of January 1, 2018, assuming reversing entries are not made.

January 1,2018

What amounts will appear on the lessee’s December 31, 2017, balance sheet relative to the lease contract?

How would the value of the lease liability in part (b) change if Cage also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments?

the lease liabilty $

Please answer all the parts to my question

Explanation / Answer

Journal Entries ;-

Amortization Schedule :-

d) Lease Liability of $450464 :-

Balance Sheet :-

e) Journal Entry ;-

S. No. Particulars Debit($) Credit($) a) Fixed Assets A/c Dr. 550000 To Cash A/c 120987 To Lease Liability A/c 429013 b) Amortization of the leased asset :- Depreciation A/c Dr. 110000 To Accumulated Depreciation A/c 110000 Interest Expense :- Interest Expense A/c Dr. 21451 To Lease Liability A/c 21451 c) Lease Liability A/c Dr. 104513 Interest Expense A/c Dr. 11674 To Cash A/c 120987

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