Reference no: EM132462705
Problem - Crane Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $43,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Crane's incremental borrowing rate is 9%. Crane is unaware of the rate being used by the lessor. At the end of the lease, Crane has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Crane uses the straight-line method of depreciation on similar owned equipment.
Required -
a) Make the journal entries that Crane should record on December 31, 2020.
b) Make the journal entries that Crane should record on December 31, 2021.
c) Make the journal entries that Crane should record on December 31, 2022.
d) What amounts would appear on Crane's December 31, 2022, balance sheet relative to the lease arrangement?
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