Exercise 21-1 On January 1, 2017, Larkspur Corporation signed a 5-year noncancel
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Question
Exercise 21-1 On January 1, 2017, Larkspur Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Larkspur to make annual payments of $8,482 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease tem. Larkspur uses the straight-line method of depreciation for all of its plant assets. Larkspur's incremental borrowing rate is 9%, and the lessor's implicit rate is unknown. Click here to view factor tables 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 SHOW LIST OF ACCOUNTS LINK TO TEXT VIDEO: SIMILAR EXERCISEExplanation / Answer
The present value of the minimum lease payments.
= Annual lease payment * PVIFA ( 9%, 5years)
$8,482 X 4.23972* = $35,961.30*
*Present value of an annuity due of 1 for 5 periods at 9%
Date Account Title and explanation Debit Credit 1/1/18 Leased Equipment 35,961 Lease Liability 35,961 (To record the lease) Lease Liability 8,482 Cash 8,482 (To record first payment) 12/31/18 Depreciation Expense 7192 Accumulated Depreciation - Capital Leases 7192 (To record depreciation) ($35,961 ÷ 5 = $7,192) Interest Expense 2748 Interest Payable 2748 (To record interest) [($35,961 – $8,482) X .10] 1/1/19 Lease Liability 5734 Interest Payable 2748 Cash 8482 (To record second payment)Related Questions
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