Q1. On January 1, 2021, Bahrain Company signed a 5-year lease for a machine. The terms of the lease called for Bahrain Co. to make annual payments of $8,668 at the beginning of each year, starting January 1, 2021. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. Bahrain Co. uses the straight-line method of depreciation for all of its plant (fixed) assets. Bahrains incremental borrowing rate is 10%, and the Lessors rate is unknown. Present value factor (i=10%,n=5) 4.16986

Instructions

1. What type of lease is this? Explain.
2. Compute the present value of the minimum lease payments.

3. Prepare all journal entries for Burke through Jan. 1, 2022.