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Ivanhoe Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires
Ivanhoe Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2017. Ivanhoe had purchased the machine during 2016 for $160,000. Collectibility of lease payments by Ivanhoe is probable. Ivanhoe set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Ivanhoe at the termination of the lease. Assume that Dexter Corporation does not know the rate implicit in the lease used by Ivanhoe, and Dexter's incremental borrowing rate is 8%. In addition, assume that Dexter incurs initial direct costs of $15,000. Click here to view the factor table. Compute the amount of the lease liability and right-of-use asset for Dexter. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.) Lease liability Right-of-use asset Prepare all necessary journal entries for Dexter for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Acceent Tles and Explanation Debit Credia 1/1/17 (Te recond the lease) (Te tecoed the fiest leane payment) 12/31/17 (To rooed interest expense) (To recoed amoniration of the right-of-ue aset)
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