Prepare required journal entries for the year ended

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Question - Chestnut Corp., who reports under ASPE, leases machinery on January 1, 2020, and records this as a capital lease. Seven annual lease payments of $ 70,000 are required the end of each year, starting December 31, 2020. The fair value of the machinery is $340,800 when the lease is signed and the lessor has set the lease payments to capture back all of their investment. The estimated useful life of the machinery is 8 years with no residual. Title passes to Chestnut at the end of the lease.

Chestnut's incremental borrowing rate is 12%. Chestnut is able to calculate the rate implicit in the lease.

Chestnut uses the effective interest method of amortization for the lease and the straight-line method of amortization.   

Prepare required journal entries for the year ended 2020.

Reference no: EM132561492

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