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Pharoah Company leases a building to Oriole, Inc. on January 1, 2025. The following facts pertain to the lease agreement.
1.
The lease term is 5 years, with equal annual rental payments of $4,069 at the beginning of each year.
2.
Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a
specialized nature.
3.
The building has a fair value of $19,500, a book value to Pharoah of $13,845, and a useful life of 6 years.
4.
At the end of the lease term, Pharoah and Oriole expect there to be an unguaranteed residual value of $3,460.
5.
Pharoah wants to earn a return of 9% on the lease, and collectibility of the payments is probable. This rate is known by Oriole.
Click here to view factor tables.
(b) Using the original facts of the lease, show the journal entries to be made by both Pharoah and Oriole in 2025. (List all debit entries
before credit entries. If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. For calculation purposes, use 5
decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Credit account titles are
automatically indented when the amount is entered. Do not indent manually.)
Pharoah's Journal Entries