Question
On January 1, 2014, Burke Corporation signed a6-year noncancelable lease for a machine. The terms of the lease called for Burke to make annual payments
On January 1, 2014, Burke Corporation signed a6-year noncancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $9,486at the beginning of each year, starting January 1, 2014. The machine has an estimated useful life of 7 years and a $5,040unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Burke uses the straight-line method of depreciation for all of its plant assets. Burkes incremental borrowing rate is12%, and the lessors implicit rate is unknown.
1.)Compute the present value of the minimum lease payments.(Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)
2.)Prepare all necessary journal entries for Burke for this lease through January 1, 2015.(Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)
1/1/14 1- 2- (To record the lease.) 1- 2- (To record first payment.) 12/31/14 1-
2- (To record depreciation.) 1- 2- (To record interest.) 1/1/15 1- 2- 3- (To record second payment.)
Print by: KRISTIN CASTY AC410C X40 16M8W1 - D Hartman / ACC 410C - Chap 21 Homework - Hartman *Problem 21-1 Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2014. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $522,000, and the fair value of the asset on January 1, 2014, is $793,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $107,000. Jensen depreciates all of its equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2014. 5. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. 6. Glaus desires a 10% rate of return on its investments. Jensen's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Your answer is incorrect. Try again. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25125 and the final answer to 0 decimal places e.g. 58,971.) Annual rental payment $ 738,092 Your answer is incorrect. Try again. Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25125 and the final answer to 0 decimal places e.g. 58,971.) Present value of minimum lease payments $ Your answer is partially correct. Try again. 137,826 Prepare the journal entries Jensen would make in 2014 and 2015 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation 1/1/14 Leased Equipment Debit Credit 793,000 Lease Liability 793,000 (To record the lease.) Lease Liability 137,826 Cash 137,826 (To record lease payment.) 12/31/14 Depreciation Expense 98000 Accumulated Depreciation-Equipment 98000 (To record depreciation.) Interest Expense 65517 Cash 65517 (To record interest.) 1/1/15 Lease Liability Interest Expense 72,309 65,517 Cash 12/31/15 Depreciation Expense 137,826 98000 Accumulated Depreciation-Equipment 98000 (To record depreciation.) (To record interest.) Your answer is incorrect. Try again. Prepare the journal entries Glaus would make in 2014 and 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit 1/1/14 (To record the lease.) (To record lease payment.) 12/31/14 1/1/15 12/31/15 Copyright 2000-2016 by John Wiley & Sons, Inc. or related companies. All rights reserved. Question Attempts: 1 of 5 used Print by: KRISTIN CASTY AC410C X40 16M8W1 - D Hartman / ACC 410C - Chap 21 Homework - Hartman *Exercise 21-1 On January 1, 2014, Burke Corporation signed a 6-year noncancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $9,486 at the beginning of each year, starting January 1, 2014. The machine has an estimated useful life of 7 years and a $5,040 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Burke uses the straight-line method of depreciation for all of its plant assets. Burke's incremental borrowing rate is 12%, and the lessor's implicit rate is unknown. Your answer is correct. Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) The present value of the minimum lease payments $ 43681 Your answer is partially correct. Try again. Prepare all necessary journal entries for Burke for this lease through January 1, 2015. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation 1/1/14 Leased Equipment Debit Credit 43681 Lease Liability 43681 (To record the lease.) Lease Liability 9486 Cash 9486 (To record first payment.) 12/31/14 Depreciation Expense 58287 Accumulated Depreciation-Capital Leases 58287 (To record depreciation.) Interest Expense 4103 Interest Payable 4103 (To record interest.) 1/1/15 Lease Liability Interest Payable 72309 65517 Cash 137826 (To record second payament.) Copyright 2000-2016 by John Wiley & Sons, Inc. or related companies. All rights reserved. Question Attempts: 4 of 5 usedStep by Step Solution
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