60.1K

Verified Solution

Link Copied!

DO NOT USE "lease Payable" account

Sheffield Corporation (Sheffield") manufactures equipment with an estimated economic life of 12 years. On May 30, 2020, Sheffield leases it to Gadget Corporation (Gadget) for a period of 10 years. Assume both companies follow ASPE. Details of the lease are as follows: . Equipment has a fair value and cost at the inception of the lease: $226,255. Guaranteed residual value: $39,000. Annual lease payment, due at beginning of each year: $31,250. Lease contains no renewal options and the equipment reverts to Sheffield at the end of the lease. . Gadget's incremental interest rate, as well as implicit rate is 10%. . Gadget uses straight-line amortization for similar equipment that it owns. Sheffield has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred. Prepare the journal entries for the lessee and lessor at May 30, 2020, and at December 31, 2020, which is the year end for both the lessee and lessor. (Credit account titles are automatically indented when the amount is entered.Do not indent manually. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 5,275. If no entry is required, select "No entry" for the account titles and enter O for the amounts.) Lessee: Date Account Titles and Explanation Debit Credit (To record inception of lease.) (To record lease payment.) (To record interest.) (To record depreciation expense.) Lessor: Date Account Titles and Explanation Debit Credit (To record inception of lease.) (To record collection of lease payment.) (To record interest.)

Answer & Explanation Solved by verified expert

See Answer