Exercise 21-1

On January 1, 2017, Windsor Corporation signed a5-year noncancelable lease for a machine. The terms of the lease called for Windsor to make annual payments of $8,200at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,500unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Windsor uses the straight-line method of depreciation for all of its plant assets. Windsor's incremental borrowing rate is11%, and the lessor's implicit rate is unknown.

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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 Windsor 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.)