Exercise 21-1 (Part Level Submission) signed a 5-year noncancelable lease for a
ID: 2554389 • Letter: E
Question
Exercise 21-1 (Part Level Submission) signed a 5-year noncancelable lease for a machine. The terms of the lease On January 1, 2017, Sage Corporation called for Sage to make annual payments of $8,479 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful ife of 6 years and a $4,600 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Sage uses the straight-ine method of depreciation for all of its plant assets. Sage's incremental borrowing rate is 10%, and the lessor's mpict rate is unknown. Click here to view factor tables ?Your answers correct. Compute the present value of the minimum lease payments. (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 The present value of the minimum lease payments s5355 Attempts: 1 of 3 used Prepare all necessary journal entries for Sage for this lease through January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select No Entry" for the account titles and enter 0 for the amounts. Round answers to O decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit (To record the lease.) To record first payment.) (To record depreciation.) (To record interest.) (To record second payament. Attempts: 0 of 3 used gen wileypls 1/2Explanation / Answer
Solution:(b): Computation of the present value of the minimum lease payment:
PV = 8479*4.16986 = $35,356
Solution:(C): Following is the required journal entries:
Date Particulars Debit($) Credit($) 1/1/17 Leased Equipment 35,356 Lease liability 35,356 Lease liability 8,479 Cash 8,479 12/31/17 Depreciation Expense(35356/5) 7,071 Accumulated depreciation 7,071 Interest Expense[(35356-8479)*10%] 2,688 Interest payable 2,688 1/1/18 Lease liability 5,791 Interest payable 2,688 Cash 8,479Related Questions
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