Indiana Jones Corporation enters into a 6-year lease of equipment on January 1,

Question

Indiana Jones Corporation enters into a 6-year lease of equipment on January 1, 2014, which requires 6 annual payments of $40,760 each, beginning January 1, 2014. In addition, Indiana Jones guarantees the lessor a residual value of $18,240 at lease-end. The equipment has a useful life of 6 years. Prepare Indiana Jones, January 1, 2014, journal entries assuming an iterest rate of 11%. (Credit account titles are automatically indented when amount is entered. Do not indent manually, Round present value factor calculations to S decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) anuary 1, 2014

Explanation / Answer

Cost of Asset = Present value of outflows

Journal entry:

Lease Asset Dr. $181498

To Lessor $181498

Year Discounting factor Amount Present Value 1.01.2014 1 40760 40760 01.01.2015 0.9 40760 36684 01.01.2016 0.81 40760 33016 01.01.2017 0.73 40760 29755 01.01.2018 0.66 40760 26902 01.01.2019 0.59 40760 24048 31.12.2019 0.53 (18240) (9667) Value of asset 181498

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