Reference no: EM132569981
On July 1 , 20X4, the Y Corporation, a manufacturer and distributor of DVD recorders, entered a lease with Z Inc. Y agreed to lease 20 DVDs for a period of 6 years beginning July 1 , 20X4. Other lease terms as follows:
PMT (beginning 01/07/X4) = $2,003
Manufacture cost per each DVD = $300
Normal selling price per each DVD = $525
DVD's useful life = 9 years
Implicit rate (not know by Z Inc. ) = 10%
Unguaranteed residual value of each DVD = $80
- Z Inc. can borrow at 12% and agrees to assume full responsibility for all repairs and maintenance of the machines. Z Inc. will return the DVDs to Y Corp. . Since Z Inc. is a good credit risk, Y Corp. is certain to collect the lease payments and will not incur any additional costs after the date of the lease agreement.Both Companies follow ASPE
Required:
Question 1: Determine how Y, the lessor, and Z, the lessee, should classify the lease.
Question 2: Write all required journal entries for the Lessee on July 1 , 20X4.
Question 3: Prepare the required journal entries for the Lessee on December 31 ,20X4 (assuming a December 31st Fiscal Year End).
Question 4: Prepare the required journal entries for the Lessee on July 1 , 20X5
Question 5: Prepare the required journal entries for the Lessee on December 31 , 20X5 (assuming a December 31st Fiscal Year End).
Question 6: Assume that when the DVD's are returned to Y at the end of the lease term, the residual value of each DVD is only $70. Prepare the journal entry to record the return of the machines by Z.
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