Question
Sunland Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal
Sunland Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $34,300 at the beginning of each year. The first payment is received on January 1, 2020. Sunland had purchased the machine during 2019 for $140,000. Collectibility of lease payments by Sunland is probable. Sunland set the annual rental to ensure a 8% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sunland at the termination of the lease. Assume that Dexter Corporation does not know the rate implicit in the lease used by Sunland, and Dexters incremental borrowing rate is 10%. In addition, assume that Dexter incurs initial direct costs of $16,000. Click here to view factor tables.
Prepare all necessary journal entries for Dexter for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275. Record journal entries in the order presented in the problem.)
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