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Question 12 The following facts pertain to a non-cancelable lease agreement between Shamrock Leasing Company and…
Question 12
The following facts pertain to a non-cancelable lease agreement between Shamrock Leasing Company and Pharoah Company, a lessee.
| Commencement date | May 1, 2020 | ||
| Annual lease payment due at the beginning of | |||
| each year, beginning with May 1, 2020 | $17,865.02 | ||
| Bargain purchase option price at end of lease term | $7,000 | ||
| Lease term | 5 | years | |
| Economic life of leased equipment | 10 | years | |
| Lessor’s cost | $65,000 | ||
| Fair value of asset at May 1, 2020 | $85,000 | ||
| Lessor’s implicit rate | 6 | % | |
| Lessee’s incremental borrowing rate | 6 | % |
The collectibility of the lease payments by Shamrock is probable.
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2. Suppose the collectibility of the lease payments was not probable for Shamrock. Prepare all necessary journal entries for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15.)