Acc291 Principles of Accounting: P15-4A Presented below are three different lease transactions

Acc291 Principles of Accounting

P15-4A
Presented below are three different lease transactions that occurred for Kear Inc. in 2010. Assume that all lease contracts start on January 1, 2010. In no case, does Kear receive title to the properties leased during or at the end of the lease term.
Lessor Jansen Delivery Flood Co. Louis Auto
Type of property Computer Delivery equipment Automobile
Yearly rental - 4,200 3,700
Lease term 6 years 4 years 2 years
Estimated economic life 7 years 7 years 5 years
Fair market value of lease asset $33,000 $19,000 $11,000
Present value of the lease rental payments $31,000 $13,000 $6,400
Bargain purchase option None None None
Hint: Analyze three different lease situations and prepare journal entries.

Instructions
(a) Which of the leases above are operating leases and which are capital leases? Explain.
(b) How should the lease transaction for Flood Co. be recorded in 2010?
(c) How should the lease transaction for Jansen Delivery be recorded on January 1, 2010?
Powered by