Shark Construction entered into a 10 year lease for a new piece of machinery on July 1, 2019. The economic life of the new machine was estimated to be 15 years. Annual total lease payments (including executory costs of $3,000 per year) were determined to be $97,000 per year. The rental payments were due annually, in advance. The title for the new machine will pass to Shark Construction at the conclusion of the lease, making this a capital lease. While the lessor's implicit rate is not known, Shark Construction's incremental borrowing rate is 9%. The company intends to use straight-line method of amortization and has calendar financial year.

1 2 3 4 5 6 7 8 Shark Construction entered into a 10 year lease for a new piece of machinery on July 1, 2019. The economic life of the new machine was estimated to be 15 years.. Annual total lease payments (including executory costs of $3,000 per year) were determined to be $97,000 per year. The rental payments were due annually, in advance. The title for the new machine will pass to Shark Construction at the conclusion of the lease, making this a capital lease. While the lessor's implicit rate is not known, Shark Construction's incremental borrowing rate is 9%. The company intends to use straight-line method of amortization and has calendar financial year. Make sure to show your work to possibly receive partial credit. 9 10 12 11 14 15 16 17 18 19 20 #1 Prepare all the journal entries for the lessee related to the 2019 machinery lease. 22 21 24 July 1 2019 Account 25 Debit Credit 26 27 To record Lease 29 30 31 July 1 2019 Account 32 Debit Credit 34 35 36 To record first lease payment 37 38 December 31, 2019 Account 40 Debit Credit To record interest payment 4 46 December 31, 2019 Account Debit Credit 50 To record amortization eurense 51 52 53 December 31, 2019 Account 54 Debit Credit SS 57 To record partial year lease expense 60 N 61 62 Using FASB ASC Topic 840 as a guide, determine the amortization expense for 2019. Assume the lessor retains the title to that machinery at the conclusion of the lease. There is no bargain purchase or renewal option and the fair value of the machinery if $710,000 as of the lease date. 63 64 65 66 67 cn