Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q8BE

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 1240

Short Answer

Jennifer Brent Corporation owns equipment that cost $80,000 and has a useful life of 8 years with no salvage value. On January 1, 2017, Jennifer Brent leases the equipment to Donna Havaci Inc. for 1 year with one rental payment of $15,000 on January 1. Prepare Jennifer Brent Corporation’s 2017 journal entries.

The amount of accumulated depreciation calculated is $10,000.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Accumulated Depreciation

The entire amount that a company's assets decline over time is known as accumulated depreciation. Accumulated depreciation can be found by dividing equipment cost by total useful life.

Step 2: Preparing Journal Entries

Date

Particular

Debit ($)

Credit ($)

Cash

15,000

Rent Revenue

15,000

Depreciation Expense

10,000

Accumulated Depreciation

10,000

Working Notes:-

Calculation of Accumulated Depreciation

Most popular questions for Business-studies Textbooks

Question: (Balance Sheet and Income Statement Disclosure—Lessee) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.

Inception date

October 1, 2017

Lease term

6 years

Economic life of leased equipment

6 years

Fair value of asset at October 1, 2017

$300,383

Residual value at end of lease term

–0–

Lessor’s implicit rate

10%

Lessee’s incremental borrowing rate

10%

Annual lease payment due at the beginning of each year, beginning with October 1, 2017

$62,700

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $5,500 per year and are to be paid each October 1, beginning October 1, 2017. (This $5,500 is not included in the rental payment of $62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.

The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor.

Date

Annual lease payments/Receipt

Interest (10%)

On Unpaid liability/Receivable

Reduction of Lease Liability?

Receivable

Balance of Lease Liability/Receivable

10/01/17

$300,383

10/01/17

$62,700

$62,700

237,683

10/01/18

$62,700

$23,768

38,932

198,751

10/01/19

$62,700

19,875

42,825

155,926

10/01/20

$62,700

15,593

47,107

108,819

10/01/21

$62,700

10,882

51,818

57,001

10/01/22

$62,700

5,699*

57,001

0

$376,200

$75,817

$300,383

*Rounding error is $1.

(b) Assuming the lessee’s accounting period ends on December 31, answer the following questions with respect to this lease agreement.

(4) What items and amounts will appear on the lessee’s balance sheet at December 31, 2018?

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.