Answer Happy

Monty Leasing Company agrees to lease equipment to Flounder 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 $475,000, and the fair value of the asset on January 1, 2020, is $681,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Flounder estimates that the expected residual value at the end of the lease term will be 50,000. Flounder amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Monty desires a 9% rate of return on its investments. Flounder's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.)
Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,972.) Annual rental payment $ 129874
* Your answer is incorrect. Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,972.) Present value of minimum lease payments $ 721166
Prepare the journal entries Flounder would make in 2020 and 2021 related to the lease arrangement. (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 o for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Debit Credit Account Titles and Explanation 721166 Right-of-Use Asset Lease Liability (To record the lease.) Lease Liability Cash (To record lease payment.) 1/1/20 129874 7211 1298
12/31/20 1/1/21 12/31/21 Amortization Expense Right-of-Use Asset (To record amortization.) Interest Expense Lease Liability (To record interest.) Lease Liability Cash Amortization Expense Right-of-Use Asset (To record amortization.) 95881 59129 70745 95881 958 0000 591 707 958
Interest Expense Lease Liability (To record interest.) 52055 520
Prepare the journal entries Monty would make in 2020 and 2021 related to the lease arrangement. (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 o for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit Lease Receivable 681000 Cost of Goods Sold 475000 Sales Revenue 6E Inventory (To record the lease.) Cash Lease Receivable (To record lease payment.) 1/1/20 1/1/20 129874 12
12/31/20 1/1/21 12/31/21 (To record lease payment.) Lease Receivable Interest Revenue Cash Lease Receivable Lease Receivable Interest Revenue 49601 129874 42377 12
* Your answer is incorrect. Suppose Flounder expects the residual value at the end of the lease term to be $40,000 but still guarantees a residual of $50,000, Compute the value of the lease liability at lease commencement. Lease liability $ 700640