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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
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
- What type of lease is this? Explain.
- Compute the present value of the minimum lease payments.
- Prepare all journal entries for Burke through Jan. 1, 2022.
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