Landon Corporation has decided to rent crew trucks rather than purchasing them. On April 1, 20X5, Landon enters into an agreement with TuffEnough Trucks to lease three trucks worth $200,000. The lease agreement will span six years and the life of the trucks is estimated to be seven years. Landon’s incremental borrowing rate is 6 percent. The payments per year amount to $38,370, payable each April 1, beginning with 20X5.
a. Record the capital lease.
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b. Record the first payment on 4/1/X5.
c. Record depreciation on the equipment on 12/31/X5.
d. Record interest expense on 12/31/X5.
e. Record the second payment on 4/1/X6.
4. Rollins Company purchased stock in Yuma Corporation for $40,000. Rollins considered this purchase to be a trading security. At the end of the year, Rollin’s investment in Yuma yielded an unrealized gain of $8,000. While the $8,000 unrealized gain must be reported on this year’s income statement, Rollins will not report the gain on its tax return until the investment in Yuma is sold. If Rollins has a tax rate of 35 percent, prepare the journal entry Rollins should use to record this deferred tax liability.