Accounting for a Capital Lease for Horton Company
Not what you're looking for?
Horton Company, as lessee, enters into a lease agreement on July 1, 2008, for equipment. The following data are relevant to the lease agreement:
1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on June 30 of each year.
2. The fair value of the equipment on July 1, 2008 is $1,400,000. The equipment has an economic life of 6 years with no salvage value.
3. Horton depreciates similar machinery it owns on the sum-of-the-years'-digits basis.
4. The lessee pays all executory costs.
5. Horton's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for 4 periods at 8%, 3.31213; at 10%, 3.16986.
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 the following dates: (Round all amounts to the nearest dollar. Include a partial amortization schedule.)
1. July 1, 2008.
2. December 31, 2008.
3. June 30, 2009.
4. December 31, 2009.
Purchase this Solution
Solution Summary
This solution indicates what type of lease this is and provides journal entries, the lease amortization schedule and the depreciation schedule in an attached Excel file.
Purchase this Solution
Free BrainMass Quizzes
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Lean your Process
This quiz will help you understand the basic concepts of Lean.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.