Compute the present value of the lease payments

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Question - In December 31, 2019, Skysong Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Skysong to make annual payments of $8,476 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Skysong uses the straight-line method of depreciation for all of its plant assets. Skysong's incremental borrowing rate is 9%, and the lessor's implicit rate is unknown.

Required -

(a) What type of lease is this?

(b) Compute the present value of the lease payments.

(c) Prepare all necessary journal entries for Skysong for this lease through December 31, 2020.

Reference no: EM133080784

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