Crane 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 $31,300 at the beginning of each year. The first payment is received on January 1, 2017. Crane had purchased the machine during 2016 for $140,000. Collectibility of lease payments by Crane is probable. Crane set the annual rental to ensure a 4% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crane at the termination of the lease. Assume that Dexter Corporation does not know the rate implicit in the lease used by Crane, and Dexters incremental borrowing rate is 6%. In addition, assume that Dexter incurs initial direct costs of $14,000.

Factor Table

8yrs @ 4%=1.36857

8yrs @ 6%=1.59385

a.)

Compute the amount of the lease liability and right-of-use asset for Dexter.

Lease liability $

Right-of-use asset $

b.)

Prepare all necessary journal entries for Dexter for 2017.

date	Account title	debit	credit
1/1/17
	(to record the lease)
	(to record the first lease payment)
12/31/17
	(to record interest expense)
	(To record amortization of the right-of-use asset)