Reference no: EM133060963
Question - The date of the lease is January 1, 2018 for a machinery with a useful life of 8 years. The lease contract is for a period of 6 years. The implicit interest rate in the lease is 10%.
The following present values are provided:
PV of an annuity due of 1 at 10% for 6 periods 4.7908
PV of 1 at 10% for 6 periods .5645
The lease contains neither a transfer of title to the lessee nor a purchase option.
The lease requires annual payments of 600,000 beginning January 1, 2018.
The entity had a residual value guarantee of 480,000 when the machinery is returned to the lessor upon the expiration of the lease.
Required -
1. Prepare the table of amortization of the lease liability and interest expense.
2. Prepare journal entries for the first three years.
3. Prepare journal entry on January 1, 2024 to record the return of the machinery to the lessor. Assume the fair value of the asset is 540,000.
4. Prepare journal entry on January 1, 2024 to record the return of the machinery to the lessor. Assume the fair value of the asset is 360,000.
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