Question
Short Problem. Hughey Co. as lessee records a five-year lease of machinery with guaranteed residual value on January 1, 2011. The annual lease payments of
Short Problem. Hughey Co. as lessee records a five-year lease of machinery with guaranteed residual value on January 1, 2011. The annual lease payments of $400,000 are made at the end of each year. The present value factor for an ordinary annuity at 10% and 5 years is 3.79079. The guaranteed residual value at the end of the lease term is $120,000 and Hughey Co. expect the leased machinery to have an actual residual value of 100,000. The present value factor for a single sum at 10% and 5 years is 0.62092. The machine reverts to the lessor at the end of the lease term. Hughey uses the effective-interest method and straight-line amortization. Hughey classifies the lease as a finance lease. Please round your calculations to the nearest dollar.
(a) Prepare a lease amortization schedule.
(b) Prepare all of the lessee's journal entries for 2011.
(c) Prepare all of the lessee's journal entries for 2015, assuming that the machine is worth $60,000 at the end of the lease term when it is returned to the lessor.
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