Question
On 01-01-19, Smith leased a machine with a useful life of 4 years. The noncancelable lease agreement required Smith to make 3 annual lease payments
On 01-01-19, Smith leased a machine with a useful life of 4 years. The noncancelable lease agreement required Smith to make 3 annual lease payments of $50,000 starting 01-01-19. After making the last lease payment, Smith will retain the machine. Smiths borrowing rate on 01-01-19 was 10%. Smith uses a straight-line depreciation (amortization) method with no residual value and only prepares AJEs every December 31. Determine if this is a short-term or a long-term lease. If it is a long-term lease, determine if it is a long- term finance lease or a long-term operating lease. Prepare the lease-related entries Smith should make on:
a) 01-01-19 b) 12-31-19 c) 01-01-20 d) 12-31-20 e) 01-01-21 f) 12-31-21 g) 12-31-22
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