On January 1, 2020, Adara Acquired the Right to Use

question 27

Essay

On January 1, 2020, Adara acquired the right to use equipment under a lease agreement. The lease calls for fifteen annual payments of $10,000 due at the beginning of the year. Adara must return the equipment to the lessor at the end of the lease. The January 1, 2020 payment was made as agreed. The implicit rate in the lease is 7%; the present value of the lease payments is $97,455.
Required:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g., depreciation and the accrual of interest at year-end).
b. For each entry identify the cash flow effects, if any, under both the direct and indirect methods of presentation and classify the cash flow according to its nature.

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Definitions:

Labor-Force Participation Rate

The percentage of the adult population that is part of the labor force, either employed or actively seeking employment.

Unemployment Rate

The rate at which individuals in the labor force are without jobs but earnestly seeking employment.

Marginally Attached Workers

Individuals who are not currently in the labor force but indicate that they want and are available for a job and have looked for work sometime in the recent past but not actively in the current period.

Cyclical Unemployment Rate

The cyclical unemployment rate measures the fluctuation in unemployment due to the ups and downs of economic cycles, reflecting the overall health of an economy.