At the beginning of 2016, VHF Industries acquired a machine with a fair value of $6,700,460 by signing a three-year lease. The lease is payable in three annual payments of $2.6 million at the end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1.

What is the effective rate of interest implicit in the agreement? (Enter your percentage answer as a whole number.)

Implicit Interest Rate? _____

2. to 4.

Prepare the lessees journal entries at the inception of the lease, the first lease payment at December 31, 2016 and the second lease payment at December 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record Lease Record Cash Payment Record Cash Payment

5.	Suppose the fair value of the machine and the lessors implicit rate were unknown at the time of the lease, but that the lessees incremental borrowing rate of interest for notes of similar risk was 7%. Prepare the lessees entry at the inception of the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
	Record Lease