Soaring Pieces Inc.creates aluminium alloy parts for commercial aircraft.In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp.The following information pertains to the leased asset and the lease agreement:
The lathe machine will revert back to the lessor at end of lease term,title does not transfer to lessee at any time,and there is no bargain purchase option.
Required:
a.Classify this lease from the perspective of the lessee,Soaring Pieces Inc.
b.Record the lessee's journal entries for the first year of the lease.
c.Record the lessee's journal entries after (not including)the last lease payment is made.
d.How would the answer to (c)change if the $20,000 residual value is guaranteed by Soaring Pieces and at the end of the lease the lathe was worth $16,000.

Question

Soaring Pieces Inc.creates aluminium alloy parts for commercial aircraft.In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp.The following information pertains to the leased asset and the lease agreement:
  The lathe machine will revert back to the lessor at end of lease term,title does not transfer to lessee at any time,and there is no bargain purchase option.
Required:
a.Classify this lease from the perspective of the lessee,Soaring Pieces Inc.
b.Record the lessee's journal entries for the first year of the lease.
c.Record the lessee's journal entries after (not including)the last lease payment is made.
d.How would the answer to (c)change if the $20,000 residual value is guaranteed by Soaring Pieces and at the end of the lease the lathe was worth $16,000.

Quizplus · Accepted Answer

The Answer of Soaring Pieces Inc.creates aluminium alloy parts for commercial aircraft.In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp.The following information pertains to the leased asset and the lease agreement:
  The lathe machine will revert back to the lessor at end of lease term,title does not transfer to lessee at any time,and there is no bargain purchase option.
Required:
a.Classify this lease from the perspective of the lessee,Soaring Pieces Inc.
b.Record the lessee's journal entries for the first year of the lease.
c.Record the lessee's journal entries after (not including)the last lease payment is made.
d.How would the answer to (c)change if the $20,000 residual value is guaranteed by Soaring Pieces and at the end of the lease the lathe was worth $16,000.