Question
Amusement Company leased equipment from General Robotics Company, beginning on January 1, 2017. The lease term is 5 years and requires equal rental payments of
Amusement Company leased equipment from General Robotics Company, beginning on January 1, 2017. The lease term is 5 years and requires equal rental payments of $60,493 at the beginning of each year of the lease (based on a 6% interest rate) starting on the commencement date (January 1, 2017). The equipment has a fair value at the commencement date of the lease of $300,000, a carrying value to General Robotics of $275,000, an estimated useful life of 5 years, and an estimated residual value of $40,000. The residual value is guaranteed by Smokey Finance. Therefore, this is a direct financing lease and the appropriate interest rate is 10.4%. Prepare General Robotics 2017 journal entries
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