Answered step by step
Verified Expert Solution
Question
1 Approved Answer
On 1/1/2012 ABC, Inc. enters into a 6-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls for the following
On 1/1/2012 ABC, Inc. enters into a 6-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls for the following annual payments, payable at the end of each year of the lease:
2012 $2,000
2013 $2,000
2014 $2,000
2015 $3,000
2016 $3,000
2017 $3,000
At the end of the lease, ownership and the right to use the machine reverts back to XYZ, and there is no option to purchase the machine at the end of the lease term. XYZ, Inc. purchased this machine on 12/31/2011 for $46,320, and the economic life of the machine is believed to be 20 years. Both ABC, Inc. and XYZ, Inc. use an 8% discount rate to calculate present values.
What type of lease is this from the perspective of XYZ, Inc.?
Group of answer choices Capital - Sales Type Lease Operating
Capital - Direct Financing Lease
What (if any) journal entry(ies) should XYZ, Inc. record on 12/31/2012 (Note, you can ignore depreciation)?
What (if any) journal entry(ies) should XYZ, Inc. record on 12/31/2016 (Note, you can ignore depreciation)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started