Exercise 21-1

On January 1, 2017, Nash Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Nash to make annual payments of $9,399 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Nash uses the straight-line method of depreciation for all of its plant assets. Nashs incremental borrowing rate is 9%, and the lessors implicit rate is unknown. Click here to view factor tables

Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

The present value of the minimum lease payments $

Prepare all necessary journal entries for Nash for this lease through January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.)

Date Account Titles and Explanation Debit Credit 1/1/17 12/31/17 1/1/18 (To record the lease.) (To record first payment.) 1/1/17 12/31/17 1/1/18 (To record depreciation.) (To record interest.) 1/1/18 (To record second payament.)