Question;Texas A&M University-CommerceIntermediate Accounting II, Spring 2013Quiz Chapter 21- Accounting for Leases1. Johnson Company has entered into a lease agreement for equipment which is not cancelable. The details of the lease are as follows: Inception of the lease: Jan 1, 2012, residual value at the end of the lease term is guaranteed at the end of the lease term for $50,000, annual lease payments are $124,798 due at the beginning of each year, starting on Jan 1, 2012. The lease term is 6 years, the economic life of the equipment is 5 years and the fair value of the asset at Jan 1, 2012 is $600,000. The borrowing rate is 6% per year. The lessee uses the straight line method to depreciate the asset.a. Prepare the journal entry to record the lease agreement on Jan 1, 2012 from the lessee?s perspective.b. Record the first payment on Jan 1, 2012c. Record the second payment on Jan 1, 2013 and any adjusting entries needed on Dec 31, 2013.2. George Manufacturing manufactures equipment for booths and has leased one to Peterson for a period of 10 years. The equipment has an estimated useful life of 12 years and the normal selling price of the asset is $278,072. The unguaranteed residual value is $20,000. Peterson will make annual payments of $40,000 at the beginning of each year starting on June 1, 2012 and all maintenance and insurance costs. It cost George $180,000 to manufacture the equipment and the borrowing rate is 10%.a. Record the lease agreement from the lessor?s perspective on July 1, 2013.b. Record receipt of the first payment on July 1, 2013c. Record any adjusting entry at December 31, 2013d. Record receipt of the second payment on July 1, 2014 and any other entries if needed.3. On January 1, 2011 Richardson Corp. leased a new machine from Johnson Corp for 3 years which has an expected useful life of 8 years with no salvage value. It is depreciated on a straight line basis. The annual rental payments are $180,000 and start at the beginning of the year. Richardson is required to pay a security deposit of $35,000 at the signing of the lease.a. Record the lease agreement from the lessee?s point of view on Jan 1, 2011.b. Record payment of the security deposit by Richardson and the first paymentc. Record the journal entry for initial lease contract from the lessor?s perspective.d. Record the first payment received by the lessor and the security deposit.e. Record any adjusting journal entry needed at December 31, 2011 by the lessee or lessor.
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