On December 31, 2019, Central Perk Corporation signed a non-cancelable lease for a coffee machine. The terms of the lease called for Central Perk to make 8 annual payments of $10,000 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 10 years. The machine reverts back to the lessor at the end of the lease term. Central Perk uses the straight-line method of depreciation for all of its plant assets. Central Perk's incremental borrowing rate is 4%, and the lessor's implicit rate is unknown.

Instructions

a. What type of lease is this?

b. Compute the present value of the lease payments. (Round to nearest dollar)

c. Prepare all necessary journal entries for Central Perk Corporation for this lease through December 31, 2020.

PV of an Annuity Due of $1

	i = 2%	i = 4%	i = 8%
N = 4	3.88388	3.77509	3.57710
N = 8	7.47199	7.00205	6.20637
N = 16	13.84926	12.11839	9.55948