Moss Manufacturing Company leased a piece of machinery for use in its operations from Cornea

Leasing on January 1.

Terms of the Lease

The 16-year, non-cancellable lease requires lease payments of $ 2,300 due at the beginning of each year. The machinery is estimated to have a 16-year life, is depreciated on the straight-line method, and will have no residual value at the end of the lease term. The present value of the minimum lease payments using 11.2 %and the asset's fair value on the date the lease is signed are both equal to $ 18, 658 Cornea paid fair value to acquire the equipment. The lessor's implicit rate of 11.2 % is known to Moss. Cornea has no material uncertainties as to future costs to be incurred and collectability is reasonably assured.

Using the Future & Present Value Tables

Prepare Moss Manufacturing's journal entries at the inception of the lease and at the end of the first year.

Begin by preparing the entry at the inception of the lease. Exclude the first annual payment from this entry. We will record that payment in the next step.