1. OBrien, Inc. needs a stamping machine for their factory so they can better meet customers requirements. After investigating numerous alternatives they have the following alternatives:
2. Purchase Machine A for $120,000.
3. Lease Machine B, a similar machine, for 7 years (8 year EUL) for $20,000 at the beginning of each year. There is no transfer of ownership or bargain purchase option. There is no salvage value at the end of the lease term. OBriens incremental borrowing rate is 9%.
4. Use Excel to prepare a lease amortization schedule and a depreciation schedule for the term of the lease. Prepare journal entries for the inception of the lease and the first three lease payments and first three depreciation entries. Should OBrien purchase Machine A or lease Machine B? Why?