Reference no: EM132811401
Problem 1: Cardinal Ltd. is negotiating to lease a piece of equipment to MTBA plc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Cardinal wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only £2,500 at the end of the lease term. If the fair value of the equipment at lease commencement is £70,000. What is a journal entry on this situation?
a) Debit Lease Receivable 150,001, and Credit Sales Revenue 150,001
b) Debit Lease Receivable 150,001and Cost of goods sold 120,000, and Credit Sales Revenue 150,001 and Inventory 120,000
c) Debit Lease Receivable 30,044, and Credit Cash 30,044
d) Debit Cash 30,040, andCredit Lease Receivable 30,040
Problem 2: On December 31, 2018, Burke Corporation signed a lease contract fora machine with a period of 5 years, irrevocably. Annual lease payments of $ 8,668 beginning December 31, 2018.The engine's economic life is 6 years and the residual value is $ 5,000.The machine is returned to the lessor at the end of the lease period. Burke uses the straight-line method for depreciation. Burke's incremental borrowing rate is 5%, and the implicit rate of the lessor is unknown.How much the present value of the lease payment?
a) $39,401
b) $39,402
c) $39,403
d) $39,404