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Problem 21-01

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Kingbird Company, a lessee.

Commencement date		January 1,
Annual lease payment due at the beginning of each year, beginning with January 1,		$107,198
Residual value of equipment at end of lease term, guaranteed by the lessee		$50,000
Expected residual value of equipment at end of lease term		$45,000
Lease term		6	years
Economic life of leased equipment		6	years
Fair value of asset at January 1,		$594,000
Lessors implicit rate		6	%
Lessees incremental borrowing rate		6	%

The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places e.g. 5,275.)

KINGBIRD COMPANY (Lessee) Lease Amortization Schedule
Date		Annual Lease Payment Plus GRV		Interest on Liability		Reduction of Lease Liability		Lease Liability
1/1/20
1/1/20
1/1/21
1/1/22
1/1/23
1/1/24
1/1/25
12/31/26

Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessees annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. 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
choose a transaction date
choose a transaction date
	(
choose a transaction date Jan. 1, 2020During 2020Dec. 31, 2020Jan. 1, 2021During 2021Dec. 31, 2021		enter a debit amount	enter a credit amount
		enter a debit amount	enter a credit amount
choose a transaction date
choose a transaction date Jan. 1, 2020During 2020Dec. 31, 2020Jan. 1, 2021During 2021Dec. 31, 2021	enter an account title to record interest	enter a debit amount	enter a credit amount
	enter an account title to record interest	enter a debit amount	enter a credit amount
	(To record interest.)
choose a transaction date Jan. 1, 2020During 2020Dec. 31, 2020Jan. 1, 2021During 2021Dec. 31, 2021	enter an account title to record amortization	enter a debit amount	enter a credit amount
	enter an account title to record amortization	enter a debit amount	enter a credit amount
	(To record amortization.)

Suppose Kingbird received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?

Right-of-use asset		$enter a dollar amount
Lease Liability		$enter a dollar amount

What if Kingbird prepaid rent of $5,000 to Faldo?

Right-of-use asset
Lease Liability

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