Multiple Choice Question - PV Annuity Due PV Ordinary...

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On January 2, 2013, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning December 31, 2013. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick’s incremental borrowing rate is 10%, however it knows that Gold Star’s implicit interest rate is 8%. What journal entry would Brick Co. make at December 31, 2013 to record the first lease payment?
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Unformatted text preview: PV Annuity Due PV Ordinary Annuity PV Single Sum 8%, 5 periods 4.31213 3.99271 .68508 10%, 5 periods 4.16986 3.79079 .62092 a. Lease Liability 80,000 Cash 80,000 b. Lease Liability 51,706 Interest Expense 28,294 Cash 80,000 c. Lease Liability 46,570 Interest Expense 33,430 Cash 80,000 d. Lease Liability 16,570 Interest Expense 33,430 Cash 50,000 b ($80,000 3.99271) + ($50,000 .68508) = $353,671. $80,000 – ($353,671 .08) = $51,706....
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