Reference no: EM133157496

Question - On September 1, 2020, Pharoah Corporation, which uses ASPE, signed a 4-year, non-cancellable lease for a piece of equipment. The terms of the lease called for Pharoah to make annual payments of $12,930 at the beginning of each lease year, starting September 1, 2020. The equipment has an estimated useful life of 6 years and a $7,000 unguaranteed residual value and a fair value on September 1, 2020, of $63,000. The equipment reverts back to the lessor at the end of the lease term. Pharoah uses the straight-line method of depreciation for all of its plant assets, has a calendar year end, prepares adjusting journal entries at the end of the fiscal year, and does not use reversing entries. Pharoah's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown.

Calculate the PV of the future minimum lease payments using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel functions.

Create all necessary journal entries for Pharoah Corporation for this lease, including any year-end adjusting entries through December 31, 2021.