Accounting 422 WileyPLUS Assignment Exam

Assume that IBM leased equipment that was carried at a cost of $104,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2017, with equal rental payments of $20,391 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $104,000. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 7%, no bargain-purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM’s January 1, 2017, journal entries at the inception of the lease.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Click here to view factor tables

Date	Account Titles and Explanation	Debit	Credit
January 1, 2017
	(To record the lease.)
January 1, 2017
	(To record first lease payment.)

Swifty Company leases an automobile with a fair value of $10,755 from John Simon Motors, Inc., on the following terms: 1. Noncancelable term of 50 months. 2. Rental of $250 per month (at end of each month). (The present value at 1% per month is $9,800.) 3. Estimated residual value after 50 months is $1,040. (The present value at 1% per month is $632.) Swifty Company guarantees the residual value of $1,040. 4. Estimated economic life of the automobile is 60 months. 5. Swifty Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown.

What is the present value of the minimum lease payments? The present value of the minimum lease payments $ SHOW LIST OF ACCOUNTS LINK TO TEXT

(c) Record the lease on Swifty Company’s books at the date of inception.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (d) Record the first month’s depreciation on Swifty Company’s books (assume straight-line).  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit (e) Record the first month’s lease payment.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 15.) Account Titles and Explanation Debit Credit

The following facts pertain to a noncancelable lease agreement between Pronghorn Leasing Company and Stellar Company, a lessee. Inception date: May 1, 2017 Annual lease payment due at the beginning of    each year, beginning with May 1, 2017 $21,763.30 Bargain-purchase option price at end of lease term $4,200 Lease term 5  years Economic life of leased equipment 10 years Lessor’s cost $61,000 Fair value of asset at May 1, 2017 $95,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs. The expected residual value of the equipment at the end of 5 (10) years is $12,000 ($0). Click here to view factor tables

(c) Prepare a lease amortization schedule for Stellar Company for the 5-year lease term.  (Round present value factor calculations to 5 decimal places, e.g. 1.25126 and Round answers to 2 decimal places, e.g. 15.25.) STELLAR COMPANY (Lessee) Lease Amortization Schedule Date Annual Lease Payment Plus BPO Interest on Liability Reduction of Lease Liability Lease Liability 5/1/17 $ $ $ $ 5/1/17 5/1/18 5/1/19 5/1/20 5/1/21 4/30/22 $ $ $

On January 1, 2017, Metlock Co. leased a building to Bonita Inc. The relevant information related to the lease is as follows.

1.		The lease arrangement is for 10 years.
2.		The leased building cost $4,570,000 and was purchased for cash on January 1, 2017.
3.		The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value.
4.		Lease payments are $254,500 per year and are made at the end of the year.
5.		Property tax expense of $85,100 and insurance expense of $10,900 on the building were incurred by Metlock in the first year. Payment on these two items was made at the end of the year.
6.		Both the lessor and the lessee are on a calendar-year basis.

(a) Prepare the journal entries that Metlock Co. should make in 2017.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
	(To record receipt of lease payment.)
	(To record depreciation.)
	(To record insurance and property tax.)

(b) Prepare the journal entries that Bonita Inc. should make in 2017.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
12/31/17

(c) If Metlock paid $30,800 to a real estate broker on January 1, 2017, as a fee for finding the lessee, how much should Metlock Co. report as an expense for this item in 2017?

Expense should be reported

$

On February 20, 2017, Riverbed Inc. purchased a machine for $1,438,800 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Marin Company on March 1, 2017, for a 4-year period at a monthly rental of $20,700. There is no provision for the renewal of the lease or purchase of the machine by the lessee at the expiration of the lease term. Riverbed paid $29,760 of commissions associated with negotiating the lease in February 2017. (a) What expense should Marin Company record as a result of the facts above for the year ended December 31, 2017?

Rent Expense

$

(b) What income or loss before income taxes should Riverbed record as a result of the facts above for the year ended December 31, 2017? (Hint: Amortize commissions over the life of the lease.)

Income from lease before taxes

$

Presented below are four independent situations.  (Round answers to 0 decimal places, e.g. 125. If answer is 0, please enter 0. Do not leave any fields blank.) (a) On December 31, 2017, Pearl Inc. sold computer equipment to Daniell Co. and immediately leased it back for 10 years. The sales price of the equipment was $524,300, its carrying amount is $399,700, and its estimated remaining economic life is 12 years. Determine the amount of deferred revenue to be reported from the sale of the computer equipment on December 31, 2017.

The amount of deferred revenue to be reported

$

(b) On December 31, 2017, Martinez Co. sold a machine to Cross Co. and simultaneously leased it back for one year. The sales price of the machine was $477,000, the carrying amount is $419,800, and it had an estimated remaining useful life of 14 years. The present value of the rental payments for the one year is $35,300. At December 31, 2017, how much should Martinez report as deferred revenue from the sale of the machine?

The amount of deferred revenue to be reported

$

(c) On January 1, 2017, Sandhill Corp. sold an airplane with an estimated useful life of 10 years. At the same time, Sandhill leased back the plane for 10 years. The sales price of the airplane was $497,200, the carrying amount $376,200, and the annual rental $74,306. Sandhill Corp. intends to depreciate the leased asset using the sum-of-the-years’-digits depreciation method. How much gain on the sale should be reported at the end of 2017 in the financial statements?

The gain on the sale should be reported

$

(d) On January 1, 2017, Teal Co. sold equipment with an estimated useful life of 5 years. At the same time, Teal leased back the equipment for 2 years under a lease classified as an operating lease. The sales price (fair value) of the equipment was $210,600, the carrying amount is $299,300, the monthly rental under the lease is $5,900, and the present value of the rental payments is $116,155. For the year ended December 31, 2017, determine which items would be reported on its income statement for the sale-leaseback transaction.

$
$

Sage Enterprises owns the following assets at December 31, 2017.

Cash in bank—savings account		63,200		Checking account balance		22,300
Cash on hand		8,810		Postdated checks		800
Cash refund due from IRS		34,800		Certificates of deposit (180-day)		91,320

What amount should be reported as cash?

Cash to be reported

$

Buffalo Family Importers sold goods to Tung Decorators for $38,400 on November 1, 2017, accepting Tung’s $38,400, 6-month, 7% note. Prepare Buffalo’s November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit

Recent financial statements of General Mills, Inc. report net sales of $12,442,000,000. Accounts receivable are $912,000,000 at the beginning of the year and $953,000,000 at the end of the year.

Compute General Mills' accounts receivable turnover.  (Round answer to 2 decimal places, e.g. 15.25.) Accounts receivable turnover  times

Compute General Mills’ average collection period for accounts receivable in days.  (Round answer to 2 decimal places, e.g. 15.25.) Average collection period  days

Martinez Company designated Jill Holland as petty cash custodian and established a petty cash fund of $260. The fund is reimbursed when the cash in the fund is at $23, which it is. Petty cash receipts indicate funds were disbursed for office supplies $98 and miscellaneous expense $136. Prepare journal entries for the establishment of the fund and the reimbursement.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
(To record establishment of the fund.)
(To record reimbursement.)

Question 5 Buffalo Company uses a periodic inventory system. For April, when the company sold 560 units, the following information is available. Units Unit Cost Total Cost April 1 inventory 240 $27 $ 6,480 April 15 purchase 370 32 11,840 April 23 purchase 390 35 13,650 1,000 $31,970

(a) Calculate weighted average cost per unit.  (Round answer to 2 decimal places, e.g. 2.76.) Weighted average cost per unit $

Novak Company uses a periodic inventory system. For April, when the company sold 450 units, the following information is available.

		Units		Unit Cost		Total Cost
April 1 inventory		230		$12			$ 2,760
April 15 purchase		430		14			6,020
April 23 purchase		340		16			5,440
		1,000					$14,220

Compute the April 30 inventory and the April cost of goods sold using the FIFO method.

Ending inventory		$
Cost of goods sold		$

Sweet Company uses a periodic inventory system. For April, when the company sold 570 units, the following information is available.

		Units		Unit Cost		Total Cost
April 1 inventory		250		$28			$ 7,000
April 15 purchase		350		34			11,900
April 23 purchase		400		36			14,400
		1,000					$33,300

Compute the April 30 inventory and the April cost of goods sold using the LIFO method.

Ending inventory		$
Cost of goods sold		$

Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?

Raw materials.

Supplies.

Finished goods.

Work-in-process.

A fire destroys all of the merchandise of Pharoah Company on February 10, 2017. Presented below is information compiled up to the date of the fire.

Inventory, January 1, 2017		$363,300
Sales revenue to February 10, 2017		1,848,600
Purchases to February 10, 2017		1,172,700
Freight-in to February 10, 2017		61,640
Rate of gross profit on selling price		45%

What is the approximate inventory on February 10, 2017?

Inventory at February 10, 2017

$

Presented below is information related to Teal Inc.’s inventory, assuming Teal uses lower-of-LIFO cost-or-market.

(per unit)		Skis		Boots		Parkas
Historical cost		$250.80		$139.92		$69.96
Selling price		279.84		191.40		97.35
Cost to distribute		25.08		10.56		3.30
Current replacement cost		267.96		138.60		67.32
Normal profit margin		42.24		38.28		28.05

Determine the following: (a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis.

Ceiling Limit		$
Floor Limit		$

(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots.

The cost amount

$

(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

The market amount

$

Buffalo Company began operations in 2017 and determined its ending inventory at cost and at LCNRV at December 31, 2017, and December 31, 2018. This information is presented below.

		Cost		Net Realizable Value
12/31/17		$321,280		$295,520
12/31/18		392,090		370,230

(a) Prepare the journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
12/31/17
12/31/18

(b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at cost and a perpetual system using the loss method. (Use Recovery of Loss Inventory account.)  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
12/31/17
12/31/18

(c) Which of the two methods above provides the higher net income in each year?

Carla Inc. purchased land, building, and equipment from Laguna Corporation for a cash payment of $396,900. The estimated fair values of the assets are land $75,600, building $277,200, and equipment $100,800. At what amounts should each of the three assets be recorded?  (Round intermediate percentage calculations to 5 decimal places e.g. 18.25124 and final answers to 0 decimal places, e.g. 5,275.)

		Recorded Amount
Land		$
Building		$
Equipment		$

Bramble Corporation traded a used truck (cost $26,800, accumulated depreciation $24,120) for a small computer with a fair value of $4,422. Bramble also paid $670 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

The expenditures and receipts below are related to land, land improvements, and buildings acquired for use in a business enterprise. The receipts are enclosed in parentheses.

(a)		Money borrowed to pay building contractor (signed a note)		$(286,700	)
(b)		Payment for construction from note proceeds		286,700
(c)		Cost of land fill and clearing		11,670
(d)		Delinquent real estate taxes on property assumed by purchaser		8,900
(e)		Premium on 6-month insurance policy during construction		9,060
(f)		Refund of 1-month insurance premium because construction completed early		(1,510	)
(g)		Architect’s fee on building		27,090
(h)		Cost of real estate purchased as a plant site (land $209,800 and building $55,800)		265,600
(i)		Commission fee paid to real estate agency		9,710
(j)		Installation of fences around property		4,190
(k)		Cost of razing and removing building		9,920
(l)		Proceeds from salvage of demolished building		(5,070	)
(m)		Interest paid during construction on money borrowed for construction		12,120
(n)		Cost of parking lots and driveways		17,560
(o)		Cost of trees and shrubbery planted (permanent in nature)		14,770
(p)		Excavation costs for new building		3,030

Identify each item by letter and list the items in columnar form, using the headings shown below. All receipt amounts should be reported in parentheses. For any amounts entered in the Other Accounts column, also indicate the account title.  (Enter receipt amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). If no entry is required in other accounts, select "No Entry" for the account titles.)

Item		Land		Land Improvements		Building		Other Accounts
(a)		$		$		$		$
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)

Monty Company purchased machinery for $165,900 on January 1, 2017. It is estimated that the machinery will have a useful life of 20 years, salvage value of $14,700, production of 91,100 units, and working hours of 46,100. During 2017, the company uses the machinery for 13,369 hours, and the machinery produces 12,754 units. Compute depreciation under the straight-line, units-of-output, working hours, sum-of-the-years’-digits, and double-declining-balance methods.  (Round intermediate calculations to 5 decimal places, e.g. 1.56487 and final answers to 0 decimal places, e.g. 5,125.)

		Depreciation
Straight-line		$
Units-of-output		$
Working hours		$
Sum-of-the-years’-digits		$
Double-declining-balance		$

Blue Company owns equipment that cost $1,044,000 and has accumulated depreciation of $440,800. The expected future net cash flows from the use of the asset are expected to be $580,000. The fair value of the equipment is $464,000. Prepare the journal entry, if any, to record the impairment loss.  (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Flint Corporation purchases a patent from Carla Vista Company on January 1, 2017, for $48,000. The patent has a remaining legal life of 16 years. Flint feels the patent will be useful for 10 years. Assume that at January 1, 2019, the carrying amount of the patent on Flint’s books is $38,400. In January, Flint spends $30,400 successfully defending a patent suit. Flint still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $30,400 expenditure and 2019 amortization.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
(To record expenditure of patents)
(To record amortization expense)

Indigo Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $300,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of $740,000. The fair value of the division is estimated to be $708,000 and the implied goodwill is $268,000. Prepare Indigo journal entry to record impairment of the goodwill.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Joni Larkspur Inc. has the following amounts reported in its general ledger at the end of the current year.

Organization costs		$23,200
Trademarks		14,500
Discount on bonds payable		36,200
Deposits with advertising agency for ads to promote goodwill of company		11,200
Excess of cost over fair value of net identifiable assets of acquired subsidiary		76,200
Cost of equipment acquired for research and development projects; the
equipment has an alternative future use		86,200
Costs of developing a secret formula for a product that is expected to
be marketed for at least 20 years		81,400

(a) On the basis of this information, compute the total amount to be reported by Larkspur for intangible assets on its balance sheet at year-end.

Total amount reported for intangible assets

$

Windsor Company borrowed $32,400 on November 1, 2017, by signing a $32,400, 8%, 3-month note. Prepare Windsor’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
2/1/18
Sheridan Corporation made credit sales of $27,000 which are subject to 5% sales tax. The corporation also made cash sales which totaled $23,940 including the 5% sales tax.

Prepare the entry to record Sheridan’s credit sales.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Prepare the entry to record Sheridan’s cash sales.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Swifty Inc. is involved in a lawsuit at December 31, 2017.

Prepare the December 31 entry assuming it is probable that Swifty will be liable for $952,000 as a result of this suit.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit December 31, 2017

Prepare the December 31 entry, if any, assuming it is not probable that Swifty will be liable for any payment as a result of this suit.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit December 31, 2017

Sage Factory provides a 2-year warranty with one of its products which was first sold in 2017. Sage sold $1,073,800 of products subject to the warranty. Sage expects $133,420 of warranty costs over the next 2 years. In that year, Sage spent $76,060 servicing warranty claims. Prepare Sage’s journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
2017
	(To record sales)
During 2017
	(To record warranty claims)
12/31/17

The Marigold Company issued $340,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 97. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Marigold Company records straight-line amortization semiannually.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	January 1, 2017
(b)
(c)

Blue Corporation issued a 4-year, $54,000, 5% note to Greenbush Company on January 1, 2017, and received a computer that normally sells for $38,583. The note requires annual interest payments each December 31. The market rate of interest for a note of similar risk is 15%. Prepare Blue’s journal entries for (a) the January 1 issuance and (b) the December 31 interest.  (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	January 1, 2017
(b)	December 31, 2017
Grouper Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 10% and has a carrying value of $15,000. At year-end, Grouper’s borrowing rate (credit risk) has declined; the fair value of the note payable is now $16,300.

Determine the unrealized holding gain or loss on the note.  (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).) Unrealized Holding Gain or Loss $

Prepare the entry to record any unrealized holding gain or loss.  (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Marigold Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost $111,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $41,300 payable each January 1, beginning January 1, 2017. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Marigold’s January 1, 2017, journal entries.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Click here to view factor tables

Date	Account Titles and Explanation	Debit	Credit
January 1, 2017
	(To record the lease.)
January 1, 2017
	(To record cost.)
January 1, 2017
	(To record first lease payment.)

On January 1, 2017, Larkspur Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Larkspur to make annual payments of $8,508 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Larkspur uses the straight-line method of depreciation for all of its plant assets. Larkspur’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown. Click here to view factor tables

Compute the present value of the minimum lease payments.  (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) The present value of the minimum lease payments $

Prepare all necessary journal entries for Larkspur for this lease through January 1, 2018.  (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit (To record the lease.) (To record first payment.) (To record depreciation.) (To record interest.) 1/1/18 (To record second payament.)

On June 30, 2018, Cullumber Co. sold equipment to an unaffiliated company for $2600000. The equipment had a book value of $1380000 and a remaining useful life of 10 years. That same day, Cullumber leased back the equipment at $13200 per month for 5 years with no option to renew the lease or repurchase the equipment. Cullumber’s rent expense for this equipment for the year ended December 31, 2018, should be

$79200.

$105600.

$316800.

$132000.

Carla Vista, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $294152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Carla Vista, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Carla Vista, Inc.) is 8%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?

	PV Annuity Due	PV Ordinary Annuity
8%, 4 periods	3.57710	3.31213
10%, 4 periods	3.48685	3.16987

$186443

$216211

$294152

$233507