Question

Kingston Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment’s 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased. The annual lease payment is $35,000 at the beginning of each year, and Kingston’s incremental borrowing rate is 6%, which is the same as the lessor’s implicit rate. Prepare all the necessary journal entries for Falls Company (the lessor) for 2020, assuming the equipment is carried at a cost of $200,000

Answer 1

The necessary journal entries for Falls Company as the lessor for 2020 would include recording the receipt of the lease payment and recognizing lease income, as this is an operating lease under current accounting standards. Falls Company would also continue to depreciate the asset on its own books.

Step-by-step explanation:

The subject of this question is accounting, specifically lease accounting under the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) regulations. The Falls Company, as the lessor, would make the following journal entries for the year 2020:

• January 1, 2020: Record receipt of the first annual lease payment.
• Debit: Cash $35,000
  Credit: Unearned Revenue $35,000
• Throughout the year: Recognize lease income.
• Debit: Unearned Revenue $35,000
  Credit: Lease Income $35,000

The equipment is carried at a cost of $200,000 on Falls Company's books. Since the lease does not transfer ownership or provide a purchase option at a bargain price, and the present value of the lease payments is less than 90% of the fair value, this is an operating lease. As such, Falls Company would not recognize the leased asset on the lessee's books, but instead, continue to depreciate the asset on its own books.

Throughout the year, Falls Company would also record depreciation expense:

• Debit: Depreciation Expense (amount calculated based on Falls Company's policy)
  Credit: Accumulated Depreciation (same amount)

Answer 2

The following are the answer to this question:

Step-by-step explanation:

There really is no Naming Convention accessible, that may differentiate noticeably:

It lease doesn't really follow any one of the criteria of a leased asset and is therefore classified as a lease:

Date Account title and explaination Debit Credit

1-1-17 Asset right of use $99,169 $99,169

`(35000 * 2.83339)`

1-1-17 Liability lease cash $35,000 $35,000

12-31-17 Leasing Expenses $35,000 $3,850

Liability for leasing

`(99169-35000) * 6%` $ 31, 150

Activity Right to Use (plug)