ACCT 304 Chapter 16 QUIZ

ACCT 304 Chapter 16 QUIZ
P21 6 Lessee Entries with Residual Value The following facts pertain to a noncancelable lease agreement
between Faldo Leasing Company and Vance Company, a lessee.
Inception date January 1, 2012
Annual lease payment due at the beginning of
each year, beginning with January 1, 2012 $124,798
Residual value of equipment at end of lease term,
guaranteed by the lessee $50,000
Lease term 6 years
Economic life of leased equipment 6 years
Fair value of asset at January 1, 2012 $600,000
Lessor- implicit rate 12%
Lessee- incremental borrowing rate 12%
The lessee assumes responsibility for all executory costs, which are expected to amount to $5,000 per year.
The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual
value of $50,000. The lessee uses the straight-line depreciation method for all equipment.
Instructions
(Round all numbers to the nearest cent.)
(a) Prepare an amortization schedule that would be suitable for the lessee for the lease term.
(b) Prepare all of the journal entries for the lessee for 2012 and 2013 to record the lease agreement, the
lease payments, and all expenses related to this lease. Assume the lessee- annual accounting period
ends on December 31 and reversing entries are used when appropriate.