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Prepare the journal entries for machinery leasing

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Reference no: EM132973249

Question - Telelines signed a contract with Machinery Leasing at 1st January 2018 to lease a machine. The agreement consists in 10 equal annual payments of $350,000 at the beginning of each year with an interest rate of 15%. The yearly rental payment includes $25,000 of executory costs related to insurance on the machine. The executory costs of $30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $53,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telelines and Machinery Leasing is 31 of December.

Required -

Discuss the nature of this lease to Telelines?

Discuss the nature of this lease to Machinery Leasing?

Calculate the present value of the minimum lease payment.

Prepare the journal entries for Telelines in 2018?

Prepare the journal entries for Machinery Leasing in 2018?

Reference no: EM132973249

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