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:

False Dichotomy

A logical fallacy that involves presenting two opposing options as the only possibilities, when in fact more options exist.

Hasty Generalization

A logical fallacy in which a conclusion is not logically justified by sufficient or unbiased evidence.

False Alternative

A logical fallacy where only a limited set of options are presented, ignoring other viable alternatives.

Premises

Statements or propositions upon which an argument is based or from which conclusions are drawn.