Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the

Question:

Pepper, Inc. agrees to lease equipment from the Blue for 10 years at $25,000 at the end of each year. The equipment has a fair value of $175,000 and an estimated useful life of 10 years. The lease includes a guaranteed residual value of $10,000. In addition to the lease payments, Pep-per will pay $5,000 per year for a maintenance agreement. Pepper can finance this lease with its bank at a 12% rate. The lessor's implicit lease rate is 10%.
Present value interest factors are:
______________________10% 12%
PVIF 10 periods.............0.38554......0.32197
PVIFA 10 periods..........6.14457......5.65022
1. Upon acquisition, the leased equipment will be valued on Purple's at?
2. The lease liability will be valued on Purple's at?
3. The journal entry to record this lease on Purple's books is?
4. At the end of Year 1, Purple will make a payment of $30,000. What is the journal entry to properly record this payment?
5. How much straight-line depreciation expense will Purple record for Year 1?
6. If the equipment is worth $12,500 at the end of the lease, what is the journal entry Purple will make?
7. If the equipment is worth $7,500 at the end of the lease, what is the journal entry that Purple will make?
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