Atwater Equipment Co

Accounting for Leases—Lessee and Lessor with Third-Party Guarantee

Atwater Equipment Co. manufactures, sells, and leases heavy construction equipment. England Construction Company, a regular customer, leased equipment on July 1, 2008, that had cost Atwater $252,000 to manufacture. The lease payments are $63,161, beginning on July 1, 2008, and continuing annually with the last payment being made on July 1, 2012. If England were to purchase the equipment outright, the fair market value would be $291,881. Because of the heavy wear expected on construction equipment, the lease contains a guaranteed residual value clause wherein the lessee guarantees a residual value on June 30, 2013, of $65,000. England contracted with Weather top Financial Services to serve as a third-party guarantor of the residual value. Atwater’s implicit interest rate is 12%, which is lower than England’s incremental borrowing rate of 14%.


1. Assuming that the equipment reverts to Atwater upon completion of the lease term and that the equipment has an expected useful life of 10 years, prepare the entries that should be made on the books of both Atwater and England in recording the lease on July 1, 2008. (Note: England knows the implicit interest rate for the lease.)

2. Prepare the journal entries that should be made by Atwater and England on July 1, 2009. Ignore fiscal year considerations.

3. What financial statement disclosure should be made by Weather top in its role as a third party guarantor?

Are you Looking for Quality and Plagiarism-Free Assignment Help? Get Trusted Help From the Most Skilled Writers at Hire Your Personal Writer Today and Keep Up Your GPA this Semester.
275 words per page

You essay will be 275 words per page. Tell your writer how many words you need, or the pages.

12 pt Times New Roman

Unless otherwise stated, we use 12pt Arial/Times New Roman as the font for your paper.

Double line spacing

Your essay will have double spaced text. View our sample essays.

Any citation style

APA, MLA, Chicago/Turabian, Harvard, our writers are experts at formatting.

We Accept
Image 3