The following facts pertain to a non-cancelable lease agreement between Ford and NextCar, a lessee....
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Accounting
The following facts pertain to a non-cancelable lease agreement between Ford and NextCar, a lessee.
Lease Origination Date May 1, 2017
Annual lease payments due at the beginning of each lease year $20.471.94
Bargain purchase option price at the end of lease term $4,000
Lease term 5 years
Economic life of leased equipment 10 years
Lessors cost $65,000
Fair value of asset on May 1, 2017 $91,000
Fair value of asset on May 1, 2022 $15,000
Lessor implicit rate 8%
Lessees incremental borrowing rate 8%
The collectability of the lease payments is probable.
What type of lease is this and why?
Prepare a lease amortization schedule for NextCar for the 5-year term.
Prepare the journal entries on the lessees book to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. NextCar has an April 30th year end.
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