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Question
Conroy Company leased equipment on January 1, 2012. Information pertinent to the lease is as follows:
The lease term is 6 years.
Annual payments of $60,000 are due on January 1 of each year; the first payment was made at the inception of the lease.
Conroy's incremental borrowing rate is 12%.
The implicit interest rate is 10%; Conroy knew the implicit interest rate.
The unguaranteed residual value is $50,000.
The useful life of the equipment is 10 years.
Conroy uses the straight-line depreciation method.
The fair value of the equipment is $325,000.
The lease agreement did not contain either a bargain purchase option or a transfer of title.
Required:
Prepare all the necessary journal entries for the year ended December 31, 2012 with respect to Conroy Company's lease.
Answer
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