Question

Kingston Corporation leases equipment from Falls Company on January 1, 2020. 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 $35,000 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 2020, assuming the equipment is carried at a cost of $200,000

Answer 1

Answer:

The following are the answer to this question:

Explanation:

There really is no Naming Convention accessible, that may differentiate noticeably:  

It lease doesn't really follow any one of the criteria of a leased asset and is therefore classified as a lease:

Date               Account title and explaination             Debit            Credit

1-1-17                  Asset right of use                               $99,169         $99,169

                          $(35000 \times 2.83339)$            

1-1-17                   Liability lease cash                           $35,000        $35,000

12-31-17              Leasing Expenses                                $35,000        $3,850

                           Liability for leasing

                          $(99169-35000) \times 6%$                                                    $ 31, 150

                          Activity Right to Use (plug)