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    On January 2

    Uploaded by

    Chris Tian Florendo
    Gold Star Leasing Company leases equipment to Brick Co. with 5 annual payments of $80,000 each. Brick Co. guarantees the $50,000 residual value. Gold Star's implicit interest rate is 8% while Brick Co.'s rate is 10%. The journal entry Gold Star would make is to record a lease receivable of $334,310 and equipment of $334,310, representing the present value of the lease payments and residual value using an 8% discount rate.

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    On January 2

    Uploaded by

    Chris Tian Florendo
    229 views2 pages
    Gold Star Leasing Company leases equipment to Brick Co. with 5 annual payments of $80,000 each. Brick Co. guarantees the $50,000 residual value. Gold Star's implicit interest rate is 8% while Brick Co.'s rate is 10%. The journal entry Gold Star would make is to record a lease receivable of $334,310 and equipment of $334,310, representing the present value of the lease payments and residual value using an 8% discount rate.

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    Gold Star Leasing Company leases equipment to Brick Co. with 5 annual payments of $80,000 each. Brick Co. guarantees the $50,000 residual value. Gold Star's implicit interest rate is 8% while Brick Co.'s rate is 10%. The journal entry Gold Star would make is to record a lease receivable of $334,310 and equipment of $334,310, representing the present value of the lease payments and residual value using an 8% discount rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    229 views2 pages

    On January 2

    Uploaded by

    Chris Tian Florendo
    Gold Star Leasing Company leases equipment to Brick Co. with 5 annual payments of $80,000 each. Brick Co. guarantees the $50,000 residual value. Gold Star's implicit interest rate is 8% while Brick Co.'s rate is 10%. The journal entry Gold Star would make is to record a lease receivable of $334,310 and equipment of $334,310, representing the present value of the lease payments and residual value using an 8% discount rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    1. On January 2, 2013, Gold Star Leasing Company leases equipment to Brick Co.

    with 5
    equal annual payments of $80,000 each, payable beginning December 31, 2013. Brick
    Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease
    term. Bricks incremental borrowing rate is 10%, however it knows that Gold Stars
    implicit interest rate is 8%. What journal entry would Gold Star make at January 2, 2013
    assuming this is a directfinancing lease?

    PV Annuity Due PV Ordinary Annuity PV Single Sum


    8%, 5 periods 4.31213 3.99271 .68508
    10%, 5 periods 4.16986 3.79079 .62092

    a. Lease Receivable 450,000


    Equipment 450,000
    b. Lease Receivable 319,416
    Loss 130,584
    Equipment 450,000
    c. Lease Receivable 334,310
    Equipment 334,310
    d. Lease Receivable 353,671
    Equipment 353,671

    2. Mays Company has a machine with a cost of $600,000 which also is its fair value on the
    date the machine is leased to Park Company. The lease is for 6 years and the machine
    is estimated to have an unguaranteed residual value of $60,000. If the lessor's interest
    rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be
    a. $138,541.
    b. $123,698.
    c. $117,270.
    3. On January 2, 2013, Gold Star Leasing Company leases equipment to Brick Co. with 5
    equal annual payments of $80,000 each, payable beginning December 31, 2013. Brick
    Co. agrees to guarantee the $50,000 residual value of the asset at the end of the
    lease term. Bricks incremental borrowing rate is 10%, however it knows that Gold
    Stars implicit interest rate is 8%. What journal entry would Brick Co. make at
    December 31, 2013 to record the first lease payment?
    PV Annuity Due PV Ordinary Annuity PV Single Sum
    8%, 5 periods 4.31213 3.99271 .68508
    10%, 5 periods 4.16986 3.79079 .62092

    a. Lease Liability 80,000


    Cash 80,000
    b. Lease Liability 51,706
    Interest Expense 28,294
    Cash 80,000
    c. Lease Liability 46,570
    Interest Expense 33,430
    Cash 80,000
    d. Lease Liability 16,570
    Interest Expense 33,430
    Cash 50,000

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