Problem 21-1 Pharoah Leasing Company agrees to lease machinery to Novak Corporation on January 1, 2017. 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 $569,000, and the fair value of the asset on January 1, 2017, is $682,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $101,000. Novak depreciates all of its equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2017. 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. Pharoah desires a 9% rate of return on its investments. Novaks incremental borrowing rate is 10%, and the lessors implicit rate is unknown. (Assume the accounting period ends on December 31.)

I have the answer for A=

Calculate the amount of the annual rental payment required. (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.)

Annual rental payment= (682000-(101000*.54703))/(5.4892)

=114247.0124

.54703=PV table 5.48592=Annuity PV table

What I need figured out B:

	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. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Present value of minimum lease payments=????

C:

D:Prepare the journal entries Pharoah would make in 2017 and 2018.

Account Titles and Explanation Debit Credit Date Leased Equipment 1/1/17 658090 Lease Liability 658090 (To record the lease.) Lease Liability 124529 Cash 124529 (To record lease payment.) Depreciation Expense 79584 12/31/17 Accumulated Depreciation-Capital Leases 79584 (To record depreciation.) x x Interest Expense 53356 Interest Payable 53356 (To record interest.) Lease Liability 1/1/18 71173 Interest Payable 53356 Cash 124529 Depreciation Expense 12/31/18 79584 Accumulated Depreciation-Capital Leases 79584 (To record depreciation.) Interest Expense 53356 Interest Payable 53356 (To record interest.) x x Account Titles and Explanation Debit Credit Date Lease Receivable 1/1/17 682000 Cost of Goods Sold 569000 Sales Revenue 682000 Inventory 569000 (To record the lease.) Cash 124529 124529 Lease Receivable (To record lease payment.) Interest Receivable 12/31/17 50172 Interest Revenue 50172 Cash 1/1/18 124529 Lease Receivable 74357 Interest Receivable 50172 Interest Receivable 12/31/18 43480 Interest Revenue 43480 x x Account Titles and Explanation Debit Credit Date Leased Equipment 1/1/17 658090 Lease Liability 658090 (To record the lease.) Lease Liability 124529 Cash 124529 (To record lease payment.) Depreciation Expense 79584 12/31/17 Accumulated Depreciation-Capital Leases 79584 (To record depreciation.) x x Interest Expense 53356 Interest Payable 53356 (To record interest.) Lease Liability 1/1/18 71173 Interest Payable 53356 Cash 124529 Depreciation Expense 12/31/18 79584 Accumulated Depreciation-Capital Leases 79584 (To record depreciation.) Interest Expense 53356 Interest Payable 53356 (To record interest.) x x Account Titles and Explanation Debit Credit Date Lease Receivable 1/1/17 682000 Cost of Goods Sold 569000 Sales Revenue 682000 Inventory 569000 (To record the lease.) Cash 124529 124529 Lease Receivable (To record lease payment.) Interest Receivable 12/31/17 50172 Interest Revenue 50172 Cash 1/1/18 124529 Lease Receivable 74357 Interest Receivable 50172 Interest Receivable 12/31/18 43480 Interest Revenue 43480 x x