Cheyenne Inc. was incorporated in 2019 to operate as a computer software service firm, with an accounting fiscal year en
Posted: Mon May 02, 2022 6:40 am
Cheyenne Inc. was incorporated in 2019 to operate as a
computer software service firm, with an accounting fiscal year
ending August 31. Cheyenne’s primary product is a
sophisticated online inventory-control system; its customers pay a
fixed fee plus a usage charge for using the system.
Cheyenne has leased a large, Alpha-3 computer system from the
manufacturer. The lease calls for a monthly rental of
$41,000 for the 144 months (12 years) of the
lease term. The estimated useful life of the computer
is 15 years.
All rentals are payable on the first day of the month beginning
with August 1, 2020, the date the computer was installed and the
lease agreement was signed. The lease is non-cancelable for
its 12-year term, and it is secured only by the manufacturer’s
chattel lien on the Alpha-3 system.
This lease is to be accounted for as a finance lease
by Cheyenne, and it will be amortized by the straight-line
method. Borrowed funds for this type of transaction would
cost Cheyenne 6% per year (0.50% per month). Following is
a schedule of the present value of an annuity due for selected
periods discounted at 0.50% per period when payments are made
at the beginning of each period.
Periods
(months)
Present Value of an Annuity Due
Discounted at 0.50% per Period
Prepare all entries Cheyenne should have made in its
accounting records during August 2020 relating to this lease.
Remember, August 31, 2020, is the end of Cheyenne’s fiscal
accounting period, and it will be preparing financial statements on
that date. Do not prepare closing entries. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts. Round answers
to 0 decimal places, e.g. 125. Record journal entries in the order
presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
August 1, 2020August 31, 2020
(To record the lease.)
(To record lease payment.)
August 1, 2020August 31, 2020
(To record interest.)
August 1, 2020August 31, 2020
(To record amortization.)
computer software service firm, with an accounting fiscal year
ending August 31. Cheyenne’s primary product is a
sophisticated online inventory-control system; its customers pay a
fixed fee plus a usage charge for using the system.
Cheyenne has leased a large, Alpha-3 computer system from the
manufacturer. The lease calls for a monthly rental of
$41,000 for the 144 months (12 years) of the
lease term. The estimated useful life of the computer
is 15 years.
All rentals are payable on the first day of the month beginning
with August 1, 2020, the date the computer was installed and the
lease agreement was signed. The lease is non-cancelable for
its 12-year term, and it is secured only by the manufacturer’s
chattel lien on the Alpha-3 system.
This lease is to be accounted for as a finance lease
by Cheyenne, and it will be amortized by the straight-line
method. Borrowed funds for this type of transaction would
cost Cheyenne 6% per year (0.50% per month). Following is
a schedule of the present value of an annuity due for selected
periods discounted at 0.50% per period when payments are made
at the beginning of each period.
Periods
(months)
Present Value of an Annuity Due
Discounted at 0.50% per Period
Prepare all entries Cheyenne should have made in its
accounting records during August 2020 relating to this lease.
Remember, August 31, 2020, is the end of Cheyenne’s fiscal
accounting period, and it will be preparing financial statements on
that date. Do not prepare closing entries. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts. Round answers
to 0 decimal places, e.g. 125. Record journal entries in the order
presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
August 1, 2020August 31, 2020
(To record the lease.)
(To record lease payment.)
August 1, 2020August 31, 2020
(To record interest.)
August 1, 2020August 31, 2020
(To record amortization.)