Question
NDU Corp. entered into a 15-year noncancellable lease beginning January 1, 2015, for equipment to use in its smelting operations. The term of the lease
NDU Corp. entered into a 15-year noncancellable lease beginning January 1, 2015, for equipment to use in its smelting operations. The term of the lease is the same as the expected economic life of the equipment. NDU uses straight-line depreciation for all plant assets. The provisions of the lease call for annual payments of $290,000 at the beginning of each year for the 15-year period of the lease. At the end of the 15 years, the equipment is expected to be scrapped. The incremental borrowing rate of NDU is 10%, which equals the lessors computed implicit interest rate.
Record the lease on the books of NDU and give all the entries necessary to record the lease for its first year plus the entry to record the second lease payment on December 31, 2015.
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