Reference no: EM132461056

ACC 302 Intermediate Accounting Assignment - University of Kentucky, USA

Problem - On January 1, 2017, Shamrock Company contracts to lease equipment for 5 years, agreeing to make a payment of $91,823 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $410,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Shamrock's incremental borrowing rate is 6%, and the implicit rate in the lease is 6%, which is known by Shamrock. Title to the equipment transfers to Shamrock at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

Required -

1. Prepare the journal entries that Shamrock should record on January 1, 2017.

2. Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2017.

3. Prepare the journal entry to record the lease payment of January 1, 2018, assuming reversing entries are not made.

4. What amounts will appear on the lessee's December 31, 2017, balance sheet relative to the lease contract?

5. How would the value of the lease liability in part (b) change if Shamrock also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments?