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ch21 - 5 Horton's incremental borrowing rate is 7 per year...

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Name: __________________________ Problem chapter 21 1. Lessee accounting—capital lease. Horton Company, as lessee, enters into a lease agreement on July 1, 2010, for equipment. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 8 years, with no renewal option. Payments of $120,000 are due on July 1 of each year. 2. The fair value of the equipment on July 1, 2010 is $789,886. The equipment has an economic life of 9 years with no salvage value. 3. Horton depreciates similar machinery it owns on the straight line basis. 4. The lessee pays all executory costs.
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Unformatted text preview: 5. Horton's incremental borrowing rate is 7% per year. The lessee is aware that the lessor used an implicit rate of 6% in computing the lease payments. Chapter 6 has the pv tables if needed. Instructions (a) Indicate the type of lease Horton Company has entered into and what accounting treatment is applicable. (b) Prepare the journal entries on Horton's books that relate to the lease agreement for the following dates: (Round all amounts to the nearest dollar. Include a partial amortization schedule.) 1. July 1, 2010. 2. December 31, 2010. 3. July 1, 2011. 4. December 31, 2011....
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