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Prepare journal entries for ABB Ltd for five year lease

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Question - ABB Ltd leased a machine on 1 January 2017 for 5 years. The leased machinery has a fair value of $300,000. The implicit rate of interest in the lease is 10%. The annual lease payments are payable in advance at beginning of each accounting period. The first annual instalment of $71,945 was paid on 1 January 2017. ABB Ltd does not intend to buy the machine at the end of the lease term.

Required -

a) Is lease a finance lease or operating lease? Why?

b) Prepare journal entries for ABB Ltd for 5 year lease.

c) Assume you are a manager of business. Which lease (finance lease or operating lease) do you prefer? Explain your choose.

Reference no: EM133040196

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