Question
Metzger Manufacturing manufactured a specialty piece of heavy equipment which will be leased to Winchell Socket Wrench Company. The value of the equipment is 512,000,000.
Metzger Manufacturing manufactured a specialty piece of heavy equipment which will be leased to Winchell Socket Wrench Company. The value of the equipment is 512,000,000. Metzgers costs of manufacturing the equipment are $8,000,000. Engineers estimate the equipment will have a useful life of 15 years. The equipment will be leased to Winchell for 12 years. Winchell guarantees that at termination of the lease, the equipment will have a value of at least 53.000.000 and if the value is appraised at less than that amount, Winchell will pay the difference to Metzger. The expected value of the residual value at the time the lease is signed is $4,000,000. Winchell is a AAA rated company so all lease payments are expected to be collected by Metzger. Metzgers required rate of return on the lease is 8%. The lease will be signed January 1, 2019, and the first payment will be due the first day of each year (the first payment will be made January 1, 2019).
Required:
Prepare all the necessary accounting entries for Metzger for 2019.
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