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PROBLEM: On January 1, 2019 Day Co. leased a new machine from Parr with the following pertinent information: Lease term 6 years Annual rental payable
PROBLEM:
On January 1, 2019 Day Co. leased a new machine from Parr with the following pertinent information:
Lease term 6 years
Annual rental payable at the beginning of each year $50,000
Useful life of machine 8 years
Days incremental borrowing rate 15%
Implicit interest rate in lease (known by Day) 12%
Present value of annuity of 1 in advance for 6 periods at
12% 4.61
15% 4.35
The lease passes ownership of the machine to Day at the termination of the lease. The cost of the machine on Parrs accounting record is $375,500.
QUESTIONS:
- At the beginning of the lease term, Day should record a lease liability of
- $375,500
- $230,500
- $217,500
- $0
- Is this a capital or operating lease?
- Record/Journalize the entry Day should make at the inception/beginning of the lease Jan 1, 2019
- Record/journalize Days lease payment at 1/1/ 2019
- Record/journalize Days annual interest payment for 2019 (use the effective interest rate method)
- How much is Days lease liability (how much he owes) at the end of 2019.
- Record/journalize the depreciation @ the end of 2019.
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