Question
Martinez Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $56,000 are to
Martinez Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $56,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Martinezs incremental borrowing rate is 8%. Martinez is unaware of the rate being used by the lessor. At the end of the lease, Martinez has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Martinez uses the straight-line method of depreciation on similar owned equipment.
Prepare the journal entries, that Martinez should record on December 31, 2020. (Credit account titles are automatically i for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers Date Account Titles and Explanation Debit Credit December 31, 2020 Fright-of-Use Asset 185479.28 185479.28 Lease Liability (To record leased asset and related liability.) Lease Liability 56000 56000 Cash (To record the first rental payment.) What amounts would appear on Martinez's December 31, 2022, balance sheet relative to the lease arrangement? MARTINEZ STEEL COMPANY Balance Sheet December 31, 2022 Assets Non-current Assets Right-of-Use Asset 159696.53 Liabilities Current Liabilities Lease Liability 56000 Long-term Liabilities Lease Liability 99863.03 Click if you would like to Show Work for this question: Open Show Work
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