Use the information for Crosley Company in E21.8. Assume that Dexter Corporation does not know the rate implicit in the lease used by Crosley, and Dexter's incremental borrowing rate is 8%. In addition, assume that Dexter incurs initial direct costs of $15,000.
Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2019. The lease is for an 8-year period and requires equal annual payments of $35,004 at the beginning of each year. The first payment is received on January 1, 2019. Crosley had purchased the machine during 2018 for $160,000. Collectibility of lease payments by Crosley is probable. Crosley set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crosley at the termination of the lease.
Instructions
a. Compute the amount of the lease liability and right-of-use asset for Dexter.
b. Prepare all necessary journal entries for Dexter for 2019.