Reference no: EM131790737

1. On January 2, 2012, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2014assuming this is a direct-financing lease?

a)

b)

c)

d)

2. On January 2, 2012, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2014to record the lease?

a)

b)

c)

d)

3. ON Jan 2, 2015, Hernandez, Inc. signed a 10-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $200,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciaition for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,200,000, based on implicit interest of 10%.

3-1.In its 2015 income statement, what amount of interest expense should Hernandez report from this lease transaction?

a. 0

b. 81000

c. 108000

d. 120000

3-2. In its 2015 income statement, what amount of depreciation expense should Hernandez report from this lease transaction?