Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following. ● Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. ● Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. ● Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. ● Shamrock paid legal fees of $3,000 in executing the lease. Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock.
Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following. ● Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. ● Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. ● Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. ● Shamrock paid legal fees of $3,000 in executing the lease. Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock.
Chapter4: Income Exclusions
Section: Chapter Questions
Problem 76IIP
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Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following.
Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare thejournal entry to record the initial lease liability and right-of-use asset for Shamrock. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)
Click here to view factor tables.
| ● | Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. | |
| ● | Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. | |
| ● | Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. | |
| ● | Shamrock paid legal fees of $3,000 in executing the lease. |
Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the
Click here to view factor tables.
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Account Titles and Explanation
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Debit
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Credit
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PLEASE FILL OUT ONLY THES THREE BOXES NOT MORE WITH THE ACCOUNT TITLES AND THE AMOUNTS PLEASE READ THE QUESTION CAREFULLY.
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