Question

On January 1, 2020, Sandhill Company leased equipment to Flynn Corporation. The following information pertains to...

On January 1, 2020, Sandhill Company leased equipment to Flynn Corporation. The following information pertains to this lease.

1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000.
2. Equal rental payments are due on January 1 of each year, beginning in 2020.
3. The fair value of the equipment on January 1, 2020, is $170,000, and its cost is $140,000.
4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis.
5. Sandhill set the annual rental to ensure a 7% rate of return. Flynn’s incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown.
6. Collectibility of lease payments by the lessor is probable.


Both the lessor and the lessee’s accounting periods end on December 31.

Prepare the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2,000 are incurred by Flynn to negotiate the lease.

Homework Answers

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
On January 1, 2020, Sunland Company leased equipment to Flynn Corporation. The following information pertains to...
On January 1, 2020, Sunland Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $6,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment...
On January 1, 2017, Tamarisk Company leased equipment to Vaughn Corporation. The following information pertains to...
On January 1, 2017, Tamarisk Company leased equipment to Vaughn Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2017. 3. The fair value of the equipment on January 1, 2017, is $184,000, and its cost is $147,200. 4. The equipment...
Assume that IBM leased equipment that was carried at a cost of $178,000 to Sandhill Company....
Assume that IBM leased equipment that was carried at a cost of $178,000 to Sandhill Company. The term of the lease is 7 years December 31, 2019, with equal rental payments of $30,044 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $173,250. The equipment has a useful life of 7 years with no salvage value. The lease has an implicit interest rate of 7%, no bargain purchase option, and no transfer of...
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Sunland Company....
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Sunland Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $71,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset...
Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. The following...
Blossom Leasing Company agrees to lease equipment to Blue Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2020, is $737,000. 3. At the end of the lease term, the asset reverts to the...
Windsor Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company....
Windsor Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $451,000. The fair value of the asset at January 1, 2020, is $451,000. 3. The asset will revert to the lessor at the...
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Metlock Company....
Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Metlock Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2020, is $56,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset...
Teal Mountain Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole...
Teal Mountain Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreemenent 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $421,000. The fair value of the asset at January 1, 2017, is $421,000. 3. The asset will revert to the lessor at...
Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported...
Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported a book value of $165,000 for the equipment in its inventory account. The lease commenced on January 1, 2020, with the first annual payment of $55,500 due immediately. The equipment has a useful life of 4 years, an estimated fair value of $206,640, and no residual or salvage value. The implicit rate of the lease is 5% and collectibility of the lease payments from...
Skysong Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company....
Skysong Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $230,000. The fair value of the asset at January 1, 2017, is $230,000. 3. The asset will revert to the lessor at the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT