Problem 21A-2 b-f (Part Level Submission) On January 1, 2017, Kingbird Company c

Question

Problem 21A-2 b-f (Part Level Submission)

On January 1, 2017, Kingbird Company contracts to lease equipment for 5 years, agreeing to make a payment of $164,292 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $674,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Kingbird’s incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Kingbird. Title to the equipment transfers to Kingbird at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

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(b)

Date

Account Titles and Explanation

Debit

Credit

January 1, 2017

(To record the lease.)

(To record lease payment.)

Problem 21A-2 b-f (Part Level Submission)

On January 1, 2017, Kingbird Company contracts to lease equipment for 5 years, agreeing to make a payment of $164,292 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $674,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Kingbird’s incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Kingbird. Title to the equipment transfers to Kingbird at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

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Explanation / Answer

1. Recording Lease:

2. Recording Lease Payment:

01-01-2017 Fixed Asset Dr          6,74,000 Lease Payable Cr          6,74,000

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