On January 1, 2017, Waterway Corporation signed a 5-year noncancelable lease for
ID: 2555047 • Letter: O
Question
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 $8,092 at the beginning of each year, starting anuary 1, 2017. The machine has an estimated useful life of 6 years and a $4,900 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 10%, and the lessor's implicit rate is unknown 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 minimun lease payments SHOW LIST OF ACCOUNTS VIDEO: SIMILAR EXERCISE Prepare all necessary joumal entries for Waterway 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 O for the amounts. Round ansivers to O decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit To record the lease.) To record first payment.)Explanation / Answer
Answer:
1
Present value of minimum Lease payment
Calculation
=Annual payment x PVIFA (10%, 5year)
=8092 x 4.16986
=$33,743
Present value of minimum Lease payment
33743
______________________________________
2
Date
Description
Debit $
Credit
1/1/2017
Leased equipment
33743
Leased Liability
33743
Leased Liability
8092
Cash
8092
12/31/2017
Depreciation Expanses
6748.5014
Accumulated Depreciation-Capital
lease
6748.501424
(33743/5)
Interest Exposes
2565
Interest Payable
2565
(33743-8092)*10%
1/1/2018
Leased Liability
5527
Interest Payable
2565
Cash
8092
Present value of minimum Lease payment
33743