Reference no: EM132217533
Question: Ambrose Co. has the option of purchasing a new delivery truck for $20,000 in cash or leasing the truck for $5,143 per year, payable at the end of each year for six years. The truck also has a useful life of six years and will be depreciated on a straight-line basis with no salvage value. The interest rate used by the lessor to determine the annual payments was 14%. Table 6-5 (Use appropriate factor from the table provided.)
Required information
Required: a-1. Assume that Ambrose Co. purchased the delivery truck and signed a six-year, 14% note payable for $20,000 in satisfaction of the purchase price. Prepare the horizontal model that Ambrose should make to record the purchase transaction. (Use amounts with + for increases and amounts with â€" for decreases.)
References
eBook & Resources
WorksheetLearning Objective: 06-07 Describe the difference between an operating lease and a capital lease.Learning Objective: 06-10 Explain the role of time value of money concepts in financial reporting and their usefulness in decision making.
Difficulty: 2 MediumLearning Objective: 06-08 Explain the similarities in the financial statement effects of buying an asset compared to using a capital lease to acquire the rights to an asset.
a-2. Assume that Ambrose Co. purchased the delivery truck and signed a six-year, 14% note payable for $20,000 in satisfaction of the purchase price. Record the journal entry that Ambrose should make to record the purchase transaction. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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