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Questions 4-6 On 1/1/2012 ABC, Inc. enters into a 10-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls
Questions 4-6 On 1/1/2012 ABC, Inc. enters into a 10-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls for annual payments of $30,000, payable at the end of each year of the lease (i.e. first payment due on 12/31/2012). At the end of the lease, the right to use the machine transfers back to XYZ. ABC, Inc. declined the choice to purchase the machine outright for $330,000, and the economic life of the machine is believed to be 30 years. There is also an option to renew the lease for an additional 10 years at a reduced rate of $20,000. This does represent a bargain renewal option that ABC, Inc. is reasonably certain to use. ABC, Inc. uses a 5% discount rate to calculate present values, and generally uses straight line depreciation to depreciate machines assuming a 0% salvage value. In addition, ABC, Inc. spends $15,000 to customize the machinery for use in their factory. They believe that this customization has a useful life of 15 years. What type of lease is this from the perspective of ABC, Inc.? Group of answer choices 9 Capital D Operating What (if any) journal entry(ies) should ABC, Inc. record on 1/1/2012? What (if any) journal entry(ies) should ABC, Inc. record on 12/31/"2013"?
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