Exercise 21-1 (Part Level Submission) On January 1, 2017, Waterway Corporation s

Question

Exercise 21-1 (Part Level Submission) On January 1, 2017, Waterway Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Waterway to make annual payments of $7,909 at the beginning of each year, starting January , 2017. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Waterway uses the straight-line method of depreciation for all of its plant assets. waterway's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. ? (b) ?Your answer is correct. Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971.) The present value of the minimum lease payments 32446 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT VIDEO: SIMILAR EXERCISE By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructo Attempts: 1 of 3 used

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SOLUTION

Date Account titles and Explanation Debit ($) Credit ($) 1.1.2017 Leased Equipment 32,446 Lease Liability 32,446 (To record the lease) Lease Liability 7,909 Cash 7,909 (To record first payment) 12.31.2017 Depreciation Expense ($32,446 / 5 years) 6,489 Accumulated Depreciation - Capital Leases 6,489 (To record depreciation) Interest Expense 2,699 Interest Payable ($32,446 - $7,909) * 11% 2,699 (To record interest) 1.1.2018 Lease Liability 5,210 Interest Payable 2,699 Cash 7,909 (To record second payment)

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