Question

Brief Exercise 21A-14 Kubby Company specializes in leasing large storage units to other businesses. Kubby entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $10,000 at the commencement of the lease on January 1, 2017. The present value of the five equal rental payments of $2,507 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $10,000, Kubby's implicit rate of return on the lease of 6%. The following is a correct, complete amortization schedule created by Kubby. Interest (6%) on Outstanding Lease Receivable Reduction of Lease Receivable ce Lease Payment Date 1/1/17 1/1/17 1/1/18 1/1/19 1/1/20 12/31/20 $2,507 2,507 2,507 2,507 1,000 $11,028 Balance of Lease Receivable $10,000 7,493 5,436 3,255 943 $2,507 2,057 2,181 2,312 943 $10,000 $450 326 195 57 $1,028 Given the above schedule, make the appropriate entries at December 31, 2020, to record the accrual of interest and the return of the storage unit to Kubby (assuming the unit is returned on December 31, 2020, at the expected and guaranteed residual value of $1,000). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record accrual of interest) (To record residual value of asset)

Answer 1

Debit Credit Date Accounts Title & Explanantion 2020 Dec 31 Finance Charges Account To Lease Liability (Being Interest Charged) 1000 Dec 31 Lease Liability Account To Asset on Lease (Being residual value of asset accounted) 1000