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Prepare the general journal entries

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Bohr Corporation (lessee) entered into a five year noncancelable;lease with Neils Company (lessor) to lease equipment with a cost;and fair market value of $22,000. The terms of the lease call for;$5,000 payments to be made at the beginning of each year;starting on January 1,20X3, the date the lease is signed, and;continuing through January 1, 20X7. At the end of the lease on;December 31, 20X7, the equipment will be available for purchase;by Bohr at its estimated fair market value at that time of $5,000.;The estimated useful life of the equipment is 8 years. Both Bohr;and Neils depreciation this type of asset on a straight line basis.;Neils prepares its lease agreements to earn a rate of return of;10%, but this rate is unknown to Bohr, whose rate for such;borrowing is currently 14%. There are no initial costs associated;with the lease and Bohr will pay the executory costs of $2,500;under the lease to Neils for insurance and taxes with its regular;annual lease payment. Collectibility of payments under the lease;agreements are relatively certain and there are no other costs to;the lessor under the lease.;REQUIRED: (1);What type of lease is this to Bohr Corporation?;Provide an explanation for your answer.;(2);Prepare the general journal entries, in proper;form, that Bohr Corporation should make for;this lease for calendar years 20X3 and 20X4.;Provide a brief explanation for your entries;with the appropriate date on which the entries;will be made.;(3);What type of lease is this to Neils Company?;Provide an explanation for your answer.;(4);Prepare the general journal entries, in proper;form, that Neils Company should make for;this lease for calendar years 20X3 and 20X4.;Provide a brief explanation for your entries;with the appropriate date on which the entries;will be made.

 

Paper#19297 | Written in 18-Jul-2015

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