Question
On January 1, 2020, Sweet Company contracts to lease equipment for 5 years, agreeing to make a payment of $150,642 at the beginning of each
On January 1, 2020, Sweet Company contracts to lease equipment for 5 years, agreeing to make a payment of $150,642 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $618,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Sweets incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Sweet. Title to the equipment transfers to Sweet at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables.
(b)
Prepare the journal entries that Sweet should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.)
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