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Prepare all necessary journal entries for diamond

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Reference no: EM133180176

Question - Diamond Company, a machinery dealer, leased a machine to Turtle Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $63,807 at the beginning of each year. The lease arrangement is non-cancellable. The first payment is received on January 1, 2017. Diamond had purchased the machine during 2016 for $376,000. Collectibility of lease payments by Diamond is probable. Diamond set the annual rental to ensure a 6% rate of return. The machine has an economic life of 9 years with no residual value and reverts to Diamond at the termination of the lease.

Required -

(a) Discuss the nature of the lease arrangement. Is it an operating lease or a finance lease?

(b) Prepare all necessary journal entries for Diamond for 2017?

Reference no: EM133180176

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