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On January 1, 2008, Garnett Company (as lessor) entered into a noncancelable

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On January 1, 2008, Garnett Company (as lessor) entered into a noncancelable lease agreement with Rush Company for machinery which was carried on the accounting records of Garnett at $4,530,000 and had a market value of $5,000,000. Minimum lease payments under the lease agreement which expires on December 31, 2017, total $7,100,000. Payments of $710,000 are due each January 1. The first payment was made on January 1, 2008 when the lease agreement was finalized. The interest rate of 10% which was stipulated in the lease agreement is the implicit rate set by the lessor. The effective-interest method of amortization is being used. Rush expects the machine to have a ten-year life with no salvage value, and be depreciated on a straight-line basis. Collectability of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.;a. From Rush Company?s viewpoint, what kind of lease is the above agreement? Explain all the applicable support for your answer. (2 points);b. From Garnett Company?s viewpoint, what kind of lease is the above agreement? Explain all the applicable support for your answer. (2 points);c. Prepare the Rush Company?s journal entries at the inception of the lease. (2 points);Date Accounts Debit Credit;d. Prepare the Garnett Company?s journal entries at the inception of the lease. (2 points);Date Accounts Debit Credit;e. Prepare the Rush Company?s journal entries that relate to the above lease agreement for December 31, 2008. (3 points);Date Accounts Debit Credit;e. What will appear in Rush Company?s yearend financial statements dated 12/31/08? (5 points);Income statement;Balance sheet;Statement of cash flows;f. Prepare the Garnett Company?s journal entries that relate to the above lease agreement for December 31, 2008. (4 points);Date Accounts Debit Credit;f. What will appear in Garnett Company?s yearend financial statements dated 12/31/08? (4 points);Income statement;Balance sheet;Statement of cash flows

 

Paper#24828 | Written in 18-Jul-2015

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