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Jensen Machinery Company manufactures and sells or leases various types of farming equipment. On 1 / 1 / 2 3 , Jensen leased a large
Jensen Machinery Company manufactures and sells or leases various types of farming equipment. On Jensen leased a large
plowing system to O'Brien Farms. Data relating to the lease follow:
Cost of equipment to Jensen $
Fair market value of equipment at $
Useful life of equipment years
Lease term years
Residual value at the end of the lease
guaranteed by O'Brien $
Residual value expected by O'Brien $
Implicit and incremental interest rates
Initial direct costs incurred by O'Brien in negotiation $
Both the lessor and lessee use straightline depreciation and have accounting periods that end on
Required:
a Calculate the yearly payment that Jensen will charge O'Brien under this lease agreement if payments are made on of each year,
beginning
b Construct the lease amortization table and prepare all journal entries that would be made by Jensen lessor during and
relating to this lease.
c Construct the lease amortization table and prepare all journal entries that would be made by O'Brien lessee during and
relating to this lease.
d Prepare the journal entries made by both Jensen and O'Brien with respect to the lease termination if the actual residual value
of the computer equipment is $
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