Water world Company leased equipment from Costner Company. The lease term is 4 years and requires equal

Question:

Water world Company leased equipment from Costner Company. The lease term is 4 years and requires equal rental payments of $43,019 at the beginning of each year. The equipment has a fair value at the inception of the lease of $150,000, an estimated useful life of 4 years, and no salvage value. Water world pays all executory costs directly to third parties. The appropriate interest rate is 10%. Prepare Water world’s January 1, 2011, journal entries at the inception of the lease.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...