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Determine the present value of the minimum lease payments

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Reference no: EM133093184

Question - Martinez Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $230,000. The terms of the lease are as follows:

The lease term begins on January 1, 2019, and runs for 5 years.

The lease requires payments of $52,425 at the beginning of each year starting January 1, 2019.

At the end of the lease term, the equipment is to be returned to the lessor.

Lantus' implied interest rate is 7%, while Martinez's borrowing rate is 8%. Martinez uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.

Required -

1. Determine the present value of the minimum lease payments.

2. Prepare Martinez's lease amortization schedule using the effective interest method.

3. Prepare the 2019 journal entries for Martinez Limited.

Reference no: EM133093184

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