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Dooly Company on January 1, 2021, enters into a ten-year noncancelable lease for equipment having an estimated useful life of 10 years and a fair
Dooly Company on January 1, 2021, enters into a ten-year noncancelable lease for equipment having an estimated useful life of 10 years and a fair value to the lessor, Paengsoo., at the inception of the lease of 5,000,000. Dooly's incremental borrowing rate is 8%. Dooly uses the straight-line method to depreciate its assets. The lease contains the following provisions: 1. Lease payments of 286,000, payable at the beginning of each six-month period. 2. A guarantee by Dooly Company that Paengsoo will realize 300,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be 210,000. Instructions (a) What is the present value of the lease payments for measurement of the lease liability of Dooly Company? (PV factor for amount due in 10 periods at 8% annual rate, 7.24689; PV factor for amount due in 10 periods at 8% annual rate, 0.46139 PV factor for annuity due of 20 semi-annual payments at 4%, 14.13394; PV factor for amount due in 20 semi-annual interest periods at 4% rate, .45639) (Round to nearest dollar.) (b) What are journal entries from Dooly Company perspective? January 1, 2021 July 1, 2021 December 31, 2021
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