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Compute the present value of the lease payments

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Question - On December 31, 2019, Jasmine Corporation signed a 5-year, non-cancelable lease for a machine currently selling for $42,000. The terms of the lease call for Jasmine to make annual payments of $8,668 at the beginning of each year, starting December 31, 2019. 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 term. Jasmine uses straight-line depreciation for all its plant assets. Jasmine's incremental borrowing rate is 5% and the lessor's implicit rate is unknown. Assume that asset is not specifically designed for use by Jasmine.

Required -

1. What type of lease is this for the lessee, Jasmine? Evaluate all five criteria.

2. Compute the present value of the lease payments and set up the lessee's amortization table.

3. Write all the necessary journal entries for 2019, 2020, and 2021.

Reference no: EM133147149

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