Compute the present value of the minimum lease payments

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Question - On January 1, 2017, Metlock Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Metlock to make annual payments of $7,880 at the beginning of each year, starting January 1, 2017. 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. Metlock uses the straight-line method of depreciation for all of its plant assets. Metlock's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown.

Compute the present value of the minimum lease payments.

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

Reference no: EM132246567

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