ACT360 CSUOhio Coco Amortization Line & Effective Interest Of Lease
Other
Option #1: Lease
Complete the following questions. In addition to answering the items below, you must submit an analysis of the assignment. Analyze the specific outcomes and write an analysis directed toward the team at Coco Inc. describing what the numbers mean and how they relate to the business. Submit journal entries in an Excel file and written segments in an MS Word document. For written answers, please make sure your responses are well-written, formatted in APA style and have proper citations, where applicable.
Assume that the following facts pertain to a non-cancelable lease agreement between Coco Inc. and Bubs Corp, a Lessee.
|
Inception date |
January 1, 2018 |
|
Residual value of equipment at end of lease term, unguaranteed |
$100,000 |
|
Lease term |
6 years |
|
Economic life of leased equipment |
8 years |
|
Fair value of asset at January 1, 2017 |
$800,000 |
|
Lessor’s implicit rate |
12% |
|
Lessee’s incremental borrowing rate |
10% |
The lessee assumes responsibility for all executory costs, which are expected to amount to $4,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment.
- Using the spreadsheet Lease Amort Schedule, prepare an amortization schedule that would be suitable for the lessee for the lease term.
- Using the spreadsheet Journal Entries, prepare the journal entries for the lessee for 2018 and 2019 to record the lease agreement and all expenses related to the lease. Assume the Lessee’s annual accounting period ends on December 31 and that reversing entries are used when appropriate.
- Prepare journal entries for the lessor of the transaction.
