Monty Corporation leased equipment to Teal Mountain, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,652 at the beginning of each year of the 2-year lease. The equipment has an economic useful life of 6 years, a fair value of $8,000, a book value of $6,000, and Monty expects a residual value of $5,500 at the end of the lease term. Monty set the lease payments with the intent of earning a 7% return, though Teal Mountain is unaware of the rate implicit in the lease and has an incremental borrowing rate of 9%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e.g. 5,275.)
Rental payments
$
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Prepare the entries for Monty for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
1/1/2012/31/20
1/1/2012/31/20
(To record the recognition of the revenue)
1/1/2012/31/20
(To record depreciation expense on the leased equipment)
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How would Montys accounting in part a change if it incurred legal fees of $600 to execute the lease documents and $500 in advertising expenses for the year in connection with the lease? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)
Date
Account Titles and Explanation
Debit
Credit
1/1/20Over the course of the year12/31/20
1/1/20Over the course of the year12/31/20
1/1/20Over the course of the year12/31/20
Answer & Explanation
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