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ORIE_3150_Homework__5_draft_ProblemSet

ORIE_3150_Homework__5_draft_ProblemSet - ORIE 3150...

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ORIE 3150 Homework #5 Due October 21, 2008 1. Watson Corp. finds that they cannot afford to purchase a new material handling system, so they decide to lease it. The fair market value of the system is $90,000. The estimated useful life of the system is 5 years and it has a salvage value of zero. There is no bargain purchase option nor ownership transfer associated with the lease. Watson Corp. signs a lease contract on Oct. 1, 2005 agreeing to pay $7,000 quarterly for 16 quarters (four years) commencing Dec. 31, 2005. Watson Corporation’s annual interest rate is 11%. Show the journal entries needed for Watson Corp’s records for Oct. 1, 2005, and Dec. 31, 2005. Watson uses the actual date method for depreciation, and only records depreciation at the end of each fiscal year. Watson’s fiscal year end is December 31. 2. Zagnut Industries finds itself with a need for a new packaging machine for its candy products. They prefer to lease the asset. The company finds that the market value for the equipment is $211,600.
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