On January 1, 2020, Sitra Company leased equipment from National Corporation. Lease payments are $100,000, payable annually beginning on January 1, 2020 for 20 years. The lease is non-cancelable. The following information pertains to the agreement: 1. The fair value of the equipment on January 1, 2020 is $850,000. 2. The estimated economic life of the equipment was 25 years on January 1, 2020 with guaranteed residual value of $25,000. 3. The lease is non-renewable. At the termination of the lease, the equipment reverts to the lessor. 4. The lessor's implicit rate is 10% which is known to Sitra. Sitra's incremental borrowing rate is 12% (The PV of $1 for 20 periods at 10% is 0.14864 and the PV for an ordinary annuity of $1 for 20 periods at 10% is 8.51356). 5. Sitra uses straight-line method for depreciation. Instructions: A) Compute the present value of minimum lease payments. B) Prepare all necessary journal entries on the lessee's books for the year 2020.
On January 1, 2020, Sitra Company leased equipment from National Corporation. Lease payments are $100,000, payable annually beginning on January 1, 2020 for 20 years. The lease is non-cancelable. The following information pertains to the agreement: 1. The fair value of the equipment on January 1, 2020 is $850,000. 2. The estimated economic life of the equipment was 25 years on January 1, 2020 with guaranteed residual value of $25,000. 3. The lease is non-renewable. At the termination of the lease, the equipment reverts to the lessor. 4. The lessor's implicit rate is 10% which is known to Sitra. Sitra's incremental borrowing rate is 12% (The PV of $1 for 20 periods at 10% is 0.14864 and the PV for an ordinary annuity of $1 for 20 periods at 10% is 8.51356). 5. Sitra uses straight-line method for depreciation. Instructions: A) Compute the present value of minimum lease payments. B) Prepare all necessary journal entries on the lessee's books for the year 2020.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 3E: Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides...
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