Exercise 21-1 On January 1, 2017, Ayayai Corporation signed a 5-year noncancelab
ID: 2411762 • Letter: E
Question
Exercise 21-1
On January 1, 2017, Ayayai Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Ayayai to make annual payments of $8,508 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Ayayai uses the straight-line method of depreciation for all of its plant assets. Ayayai’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.
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SHOW LIST OF ACCOUNTS
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Date
Account Titles and Explanation
Debit
Credit
(To record the lease.)
(To record first payment.)
(To record depreciation.)
(To record interest.)
1/1/18
(To record second payament.)
Exercise 21-1
On January 1, 2017, Ayayai Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Ayayai to make annual payments of $8,508 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Ayayai uses the straight-line method of depreciation for all of its plant assets. Ayayai’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.
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Explanation / Answer
The present value of Minimum lease payments has been calculated above.
Years Lease Rentals ($) Disc. Rate @10% Amount 1 8508 0.909 7733.77 2 8508 0.826 7027.61 3 8508 0.751 6389.51 4 8508 0.683 5810.96 5 8508 0.620 5247.96Related Questions
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