Waldens incremental borrowing rate is 8 percent per year

Reference no: EM13483310

Walden Company leases manufacturing equipment from Preston Rentals Co. on January 1, 2012. The following data pertain to the agreement:

· The term of the non-cancelable lease is three years with no renewal option. A payment of $78,443 is due on December 31 of each year.

· The fair value of the machine on January 1, 2012, is $300,000. This is the same amount that Preston paid for the machine on December 10th, 2011.

· The machine has a remaining economic life of 10 years, with no residual value.

· The machine reverts to the lessor upon termination of the lease.

· Walden guarantees a $100,000 residual value at the end of the lease term.

· Walden Corp. depreciates all machinery it owns on a straight-line basis.

· Walden's incremental borrowing rate is 8 percent per year. Walden does not have knowledge of the 5 percent implicit borrowing rate used by Preston.

· Collectability of the future lease payments is reasonably predictable, and no additional costs related to the lease are expected.

Required:

What type of lease is this to Walden? Be specific and outline which criteria you used to justify your answer.
Record the entries required on Walden's books for the inception of the lease on January 1, 2012.
Record the entry on Walden's books on December 31, 2012, to record depreciation of the leased asset.

Reference no: EM13483310

Questions Cloud

Booths after-tax profit margin is forecasted to be 5 : the booth companys sales are forecasted to increase from 1000 in 2002 to 2000 in 2003. here is the december 31 2002

A new bank has vault cash of 1million and 5 million in : a new bank has vault cash of 1million and 5 million in deposit held at its federal reserve district bank. a. if the

At the end of 2011 geisel inc has a 1700 debit balance in : at the end of 2011 geisel inc has a 1700 debit balance in the allowance for doubtful accounts before adjusting entries

What is the expected market return if the expected return : what is the expected market return if the expected return on asset x is 20 percent its beta is 1.5 and the risk free

Waldens incremental borrowing rate is 8 percent per year : walden company leases manufacturing equipment from preston rentals co. on january 1 2012. the following data pertain to

How does government regulation affect a banks expansion in : question 1 how does government regulation affect a banks expansion in the global market? what are the possible

How much new long-term debt financing will be needed in : at year-end 2002 total assets for bertin inc. were 1.2 million and accounts payable were 375000. sales which in 2002

Why are interviews in fraudulent financial statements and : why are interviews in fraudulent financial statements and tax returns handled differently than interviews in other

Recently the annual inflation rate measured by the consumer : recently the annual inflation rate measured by the consumer price index cpi was forecast to be 3.3. how could a t-bill

User Account

All Pages