Incremental Borrowing Rate

1. United Company leases an office space in a downtown building. This qualifies as an operating lease. United pays $30,000 in advance for rent every quarter. Record journal entries for United for the following:

a. United pays $30,000 for the last quarter (three months) of the year on October 1.

Don't use plagiarized sources. Get Your Custom Essay on
Incremental Borrowing Rate
Just from $13/Page
Order Essay

b. Rent expense on October 31

c. Rent expense on November 30

d. Rent expense on December 31

2. Ralph Corporation agreed to lease a piece of equipment to Amy Company on January 1, 20X4. The following info relates to the lease:

◦ The lease term is five years, at the end of which time the equipment will revert back to Ralph. The life of the equipment is six years.

◦ The fair value of the equipment is $500,000.

◦ Payments of $115,952 will be due at the beginning of the year, with the first payment due at lease signing.

◦ Amy’s incremental borrowing rate is 8 percent.

Prepare the following journal entries for Amy.

a. Record the capital lease.

b. Record the first payment on 1/1/X4.

c. Record depreciation on the equipment on 12/31/X4.

d. Record interest expense on 12/31/X4.

e. Record the second payment on 1/1/X6.