Braun Company signs a five-year capital lease with Verdi Company for office equipment. The annual lease payment is $ 20,000, and the interest rate is 10%.

Required

1. Compute the present value of Braun’s lease payments.

2. Prepare the journal entry to record Braun’s capital lease at its inception.

3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is $ 75,816.

4. Use straight- line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the officeequipment.

Transcribed Image Text:

Beginning Ending Period Balance of Ending Lease Date Liability Reduction of Lease Lease Lease Lease Liability Liability Payment Liability