Business, 06.05.2021 18:00 beesbutterflyqueen
Cullumber Incorporated leases a piece of machinery to Bramble Company on January 1, 2020, under the following terms.
1. The lease is to be for 4 years with rental payments of $16,203 to be made at the beginning of each year.
2. The machineryâ has a fair value of $87,050, a book value of $64,960, and an economic life of 10 years.
3. At the end of the lease term, both parties expect the machinery to have a residual value of $32,480. To protect against a large loss, Cullumber requests Bramble to guarantee $23,110 of the residual value, which Bramble agrees to do.
4. The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature.
5. The implicit rate is 5%, which is known by Bramble.
6. Collectibility of the payments is probable."
Required:
a. Evaluate the criteria for classification of the lease, and describe the nature of the lease.
b. Prepare the journal entries for Bramble for the year 2020.
Answers: 2
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Cullumber Incorporated leases a piece of machinery to Bramble Company on January 1, 2020, under the...
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