Lease problems

Question # 00005824 Posted By: neil2103 Updated on: 12/27/2013 04:31 AM Due on: 12/31/2013
Subject Finance Topic Finance Tutorials:
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1. Shapiro Company has entered into a lease agreement for equipment which is not
cancelable. The details of the lease are as follows: Inception of the lease: Jan 1, 2012,
residual value at the end of the lease term is guaranteed at the end of the lease term for
$50,000, annual lease payments are $124,798 due at the beginning of each year, starting
on Jan 1, 2012. The lease term is 6 years, the economic life of the equipment is 5 years
and the fair value of the asset at Jan 1, 2012 is $600,000. The borrowing rate is 6% per
year. The lessee uses the straight line method to depreciate the asset.
a. Prepare the journal entry to record the lease agreement on Jan 1, 2012 from the
lessee’s perspective.
b. Record the first payment on Jan 1, 2012
c. Record the second payment on Jan 1, 2013 and any adjusting entries needed on
Dec 31, 2013.

2. Hamilton Manufacturing manufactures equipment for booths and has leased one to
Jensen for a period of 10 years. The equipment has an estimated useful life of 12 years
and the normal selling price of the asset is $278,072. The unguaranteed residual value is
$20,000. Jensen will make annual payments of $40,000 at the beginning of each year
starting on June 1, 2012 and all maintenance and insurance costs. It cost George
$180,000 to manufacture the equipment and the borrowing rate is 10%.
a. Record the lease agreement from the lessor’s perspective on July 1, 2013.
b. Record receipt of the first payment on July 1, 2013
c. Record any adjusting entry at December 31, 2013
d. Record receipt of the second payment on July 1, 2014 and any other entries if

3. On January 1, 2011 Cage Corp. leased a new machine from Faldo Corp for 3 years which
has an expected useful life of 8 years with no salvage value. It is depreciated on a straight
line basis. The annual rental payments are $180,000 and start at the beginning of the year.
Cage is required to pay a security deposit of $35,000 at the signing of the lease.
a. Record the lease agreement from the lessee’s point of view on Jan 1, 2011.
b. Record payment of the security deposit by Cage and the first payment
c. Record the journal entry for initial lease contract from the lessor’s perspective.
d. Record the first payment received by the lessor and the security deposit.
e. Record any adjusting journal entry needed at December 31, 2011 by the lessee or
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Tutorials for this Question
  1. Tutorial # 00005614 Posted By: neil2103 Posted on: 12/27/2013 04:32 AM
    Puchased By: 2
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    The solution of Shapiro Company has entered into a lease...
    Lease_problems.xlsx (15.61 KB)

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