Rodgers Corporation agrees on January 1, 2019, to lease equipment from Packers, Inc. for 3 years. The lease calls for annual lease payments of $12,000 at the beginning of each year. The lease does not transfer ownership or contain a bargain purchase op- tion, and is not a specialized asset. In addition, the economic life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. Prepare Rodgers, journal entries on January 1, 2019 (commencement of the operating lease), and on December 31, 2019. Assume the implicit rate used by the lessor is 8%, and this is known to Rodgers. E21.17 003) Use the information for Rodgers Corporation and Packers, Inc. from BE21.16. Assume that for Packers, Inc., the lessor the collectibility of the lease payments is probable, and the fair value and cost of the equipment is $60,000. Prepare Packers' 2019 journal entries, assuming the company uses straight-line depreciation and no residual value.

Rodgers Corporation and Packers, Inc.

Journal Entries:

1. Rodgers Corporation:

January 1, 2019:

Debit Right of Use Assets $33,400

Credit Lease Liability $33,400

To record the right of use asset and lease liability with the PV.

Debit Lease Liability $12,000

Credit Cash $12,000

To record the first payment of the lease liability on January 1, 2019

December 31, 2019:

Debit Amortization Expense $10,288

Debit Interest Expense $1,712

Credit Right of Use Assets $12,000

To record the annual amortization of the right of use assets.

Packers, Inc.

January 1, 2019:  

Debit Cash $12,000

Credit Unearned Lease Revenue $12,000

To record unearned lease revenue.

December 31, 2019:

Debit Unearned Lease Revenue $12,000

Credit Lease Revenue $12,000

To record the earned lease revenue.

Debit Depreciation Expense $6,000

Credit Accumulated Depreciation- Leased Equipment $6,000

To record depreciation expense for the year.

Explanation:

a) Data and Calculations:

January 1, 2019

Annual lease payment at the beginning of each year = $12,000

The Present Value of annual lease payments = $33,400.

Implicit rate = 8%

To determine the PV of the lease payments:

N (# of periods)  3

I/Y (Interest per year)  8

PMT (Periodic Payment)  12000

FV (Future Value)  0

Results

PV = $33,399.18

Sum of all periodic payments$36,000.00

Total Interest$2,600.82

Schedule of Payments

Period       PV               PMT                Interest             FV

1          $33,400        $12,000.00        $1,712        $23,112

2          $23,112        $12,000.00          $889       $12,000

3         $12,000        $12,000.00         $0.00          $0.00

Analysis:

January 1, 2019:

Right of Use Assets $33,400 Lease Liability $33,400

Lease Liability $12,000 Cash $12,000

December 31, 2019:

Amortization Expense $10,288 Interest Expense $1,712 Right of Use Assets $12,000

Packers, Inc.

January 1, 2019:  

Cash $12,000

Unearned Lease Revenue $12,000

December 31, 2019:

Unearned Lease Revenue $12,000

Lease Revenue $12,000

Depreciation Expense $6,000 ($60,000 ÷ 10)

Accumulated Depreciation- Leased Equipment $6,000

b. a single paragraph.

a paragraph is a series of sentences that are organized and make sense, and are all related to a single topic . almost every piece of writing you do that is longer than a few sentences should be organized into paragraphs. this is because paragraphs show a reader where the subdivisions of an essay begin and end, and thus the reader see the organization of the essay into subjects in order to be able to understand its main points.