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Wojciechowski Company on January 1, 2018, enters into a nine-year noncancelable lease for equipment having an estimated useful life of 10 years and is listed
Wojciechowski Company on January 1, 2018, enters into a nine-year noncancelable lease for equipment having an estimated useful life of 10 years and is listed for sale by the lessor, Wasser Corp., at the inception of the lease for $4,000,000. The implicit rate of Wasser is 8% annually, and is known by Wojciechowski. Wojciechowski uses the straight-line method to depreciate its assets. The lease contains the following provisions: Rental payments of $266,000, payable at the beginning of each six-month period A guarantee by Wojciechowski Company that Wasser Corp. will realize $200,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $120,000. The lease contains no renewal options. The equipment reverts to Wasser at the termination of the lease. A. What kind of lease is this to Wojciechowski Company? Provide at least one test that you used to determine this B. What is the present value of the lease payments (1) for classification of the lease and (2) for measurement of the lease liability? C. What journal entries would Wojciechowski record during the first year of the lease (include dates for each journal entry)? D. What journal entries would Wasser record on January 1, 2018, if The expected residual value was $200,000 but it was unguaranteed, and The equipment has a 3,000,000 cost to Wasser
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