On January 1, 2015, Rattle, Inc. leased an asset to RottPei, Inc. for a six-year period. Rattle paid $180,000 for the asset. The fair market value of the asset at the lease inception date was $250,000. RottPei is to pay Rattle $46,909 at lease inception and at the beginning of each of the next six years. The expected economic life of the asset is six years with an estimated residual value of $0. Collectability of lease payments is reasonably predictable, and there were no costs to the lessor yet to be incurred. Costs incurred by Rattle of negotiating and consummating the completed lease transaction were $16,000.
Instructions: Show work to support your answers below.
A) Prepare any entries on the books of Rattle on the lease inception date.
B) Record any entries on the books of Rattle at December 31, 2015. Lessor’s fiscal year-end is December 31st.
C) Assume that Rattle omitted any entries that should have been recorded at December 31, 2015. What is the effect of such omission on each of the following? Indicate for each item below whether it was overstated or understated (and by what amount) or not affected by the omission.
Net income__________________________________
Total assets__________________________________
Total liabilities_______________________________
Total stockholders’ equity______________________