Question

Brief Exercise 21A-17

Bridgeport Corporation leases equipment from Falls Company on January 1, 2017. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment’s 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. The annual lease payment is $43,000 at the beginning of each year, and Kingston’s incremental borrowing rate is 6%, which is the same as the lessor’s implicit rate.


Prepare all the necessary journal entries for Falls Company (the lessor) for 2017, assuming the equipment is carried at a cost of $264,000. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account	Debit	Credit
1/1/17
12/31/17
12/31/17

Note: The first 12/31/17 journal entry is to record the recognition of the revenue each period. And for the second 12/31/17 entry is to recrod depreciation expense on the leased equipment.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
1/1/17	Cash	$43,000
	Lease rent received in advance		$43,000
	(To record the receipt of lease rent)
12/31/17	Lease rent received in advance	$43,000
	Lese rent income		$43,000
	(To record the lease rent earned)
12/31/17	Depreciation expense ($264,000 / 8 year)	$33,000
	Accumulated depreciation		$33,000
	(To record the depreciation expenses on leased assets)