Question

On January 1, 2018, Hester Co. sells machinery to Beck Corp. at its fair value of...

On January 1, 2018, Hester Co. sells machinery to Beck Corp. at its fair value of $960,000 and leases it back. The machinery had a carrying value of $840,000, the lease is for 10 years and the implicit rate is 10%. The lease payments of $142,000 start on January 1, 2018. Hester uses straight-line depreciation and there is no residual value. Required: Prepare all of Hester’s entries for 2018.

Homework Answers

Answer #1

Hester Co. (Lessee)

Date General Journal Debit Credit
January 1, 2018 Cash $960,000
Machinery $840,000
Unearned Profit on Sale-Leaseback $120,000
January 1, 2018 Leased Machinery $960,000
Lease Liability $960,000
January 1, 2018 Lease Liability $142,000
Cash $142,000
December 31, 2018 Depreciation Expense $96,000
Accumulated Depreciation—Capital Lease $96,000
December 31, 2018 Unearned Profit on Sale-Leaseback $12,000
Depreciation Expense $12,000
December 31, 2018 Interest Expense [10% × ($960,000 – $142,000)] $81,800
Interest Payable $81,800
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Lancer Inc. sells computer systems. Lancer leases computers to XYZ Company on January 1, 2018. The...
Lancer Inc. sells computer systems. Lancer leases computers to XYZ Company on January 1, 2018. The manufacturing cost of the computers was $12 million. This noncancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022. Lease term: five years (10 semiannual payments) Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers at January 1,...
On January 1, 2019, Joey Co. leased a color copier from Legoria Corp. The color copier...
On January 1, 2019, Joey Co. leased a color copier from Legoria Corp. The color copier had a fair market value of $479,079. The lease agreement specifies annual payments beginning January 1, 2019, the inception of the lease, in the amount of $92,931. The lease term is 6 years and the economic life of the color copier is 7 years. At the end of the 6-year lease term, the Color copier is expected to have a residual value of $60,000,...
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018....
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018. The manufacturing cost of the computers was $19 million.    This noncancelable lease had the following terms: Lease payments: $2,836,767 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022. Lease term: 5 years (10 semi-annual payments). No residual value; no purchase option. Economic life of equipment: 5 years. Implicit interest rate and...
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018....
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018. The manufacturing cost of the computers was $17 million. This noncancelable lease had the following terms: Lease payments: $2,489,529 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022. Lease term: 5 years (10 semi-annual payments). No residual value; no purchase option. Economic life of equipment: 5 years. Implicit interest rate and lessee's...
Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc. on January 1, 2018. Scape...
Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc. on January 1, 2018. Scape produced the equipment at a cost of $5,100,000. Lease description: Quarterly rental payments $464,353 at beginning of each period Lease term 6 years (24 quarters) No residual value; no BPO Economic life of equipment 6 years Implicit interest rate and lessee’s incremental borrowing rate 12% Fair value of asset $8,100,000 Required: Prepare appropriate entries for both User and Scape from the beginning of the...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2. The fair value of the machine on January 1, 2017, is $700,000. The machine has a remaining economic life of 10 years,...
On January 1, 2017, Windsor Corporation signed a 5-year noncancelable lease for a machine. The terms...
On January 1, 2017, Windsor Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Windsor to make annual payments of $8,634 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,900 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Windsor uses the straight-line method of depreciation for all of its plant...
Sandhill Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the...
Sandhill Corporation enters into an agreement with Yates Rentals Co. on January 1, 2021 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement: (a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $498572 are due on January 1 of each year. (b) The fair value of the machine on January 1, 2021, is $1400000. The machine has a remaining economic life...
January 1, 2018, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building...
January 1, 2018, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $6,200,000; however, the book value to Holt...
Exercise 21-1 On January 1, 2017, Kingbird Corporation signed a 5-year noncancelable lease for a machine....
Exercise 21-1 On January 1, 2017, Kingbird Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Kingbird to make annual payments of $8,199 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Kingbird uses the straight-line method of depreciation for all of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT