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Compute the present value of the minimum lease payments

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Problem - On January 1, 2017, Blossom Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Blossom to make annual payments of $8,560 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,800 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Blossom uses the straight-line method of depreciation for all of its plant assets. Blossom's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown.

Compute the present value of the minimum lease payments.

Prepare all necessary journal entries for Blossom for this lease through January 1, 2018.

Reference no: EM131604236

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