ACC 309 Milestone 2 - Management Brief.docx - Milestone 2 Management Brief ACC 309 \u2013 Intermediate Accounting III Callie Barnes A capital lease

ACC 309 Milestone 2 - Management Brief.docx - Milestone 2...

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Milestone 2: Management Brief ACC 309 – Intermediate Accounting III Callie Barnes
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A capital lease “transfers substantially all the risks and benefits of ownership from the lessor to the lessee is, in economic substance a purchase by the lessee and a sale by the lessor” (Whalen, Jones and Pagach, 2017). Peyton Approved needs new ovens as the business continues to expand. Financially it made more sense to do this in the form of a lease as to not lower the cash flow. The terms of the lease are as follows: $20,000 payments made annually at the end of the year at 5% interest for 6 years. After the lease is satisfied all six ovens will become the property of Peyton Approved. Peyton has a total capital lease obligation of $106,589.54. The initial entries for this purchase are as follows: The equipment, which is an asset to the company, will be debited $106,589.54. The first payment of $20,000 is credited to rent expense which leaves the remaining balance of $86,589.54 to be credited to lease liability. After the initial
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  • Fall '15
  • Peyton

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