Chapter 21 - the following dates: (Round all amounts to the...

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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. 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
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Unformatted text preview: 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. (a) Type: Capital Lease (Lease term/Economic life=8/9=88.9% >75%) (b) Amortization schedule from 2010 to 2012. Date Lease 6% Interest Reduction in Lease liability Payment expense liability 7/1/2010 $789,886.00 7/1/2010 120000 120000 $669,886.00 7/1/2011 120000 40193.16 79806.84 $590,079.16 7/1/2012 120000 35404.75 84595.25 $505,483.91 7/1/2010 Leased Equipment 789,886 Cash 120,000 Lease liability 669,886 12/31/2010 Dep. Exp 49,368 Accum. Dep. 49,368 Interest Exp. 20,096.58 Interest Payable 20,096.58 7/1/2011 Interest Exp. 20,096.58 Interest Payable 20,096.58 Page 1 Lease liability 79,807 Interest payable 40,193 Cash 120,000 12/31/2011 Dep. Exp 98,736 Accum. Dep 98,736 Interest Exp. 17,702 Interest Payable 17,702 Page 2...
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This note was uploaded on 03/27/2012 for the course ACCT 3312 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter 21 - the following dates: (Round all amounts to the...

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