Economic life of the equipment

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Reference no: EM13137119

On January 1, 2011, Franklin Industries leased equipment on an eight-year term at $15,000 annual rental payments, paid in advance. There is a bargain purchase option on December 31, 2018 (end of lease), of $24,000. The economic life of the equipment is estimated to be 15 years. The interest rate is 12 percent.

(1) Give the necessary entries for 2011 assuming all payments after the initial payment are made on December 31.

(2) Give the entry at December 31, 2018, assuming the option is permitted to lapse and that there is no residual value because of obsolescence. Assume 2018 amortization entries have been made.

Reference no: EM13137119

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