Acc Week 5 - E21-1, E21-14, & E21-16. E21-1 (Lessee...

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E21-1 (Lessee Entries, Capital Lease with Unguaranteed Residual Value) On January 1, 2011, Adams Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Adams to make annual payments of $9,968 at the beginning of each year, starting January 1, 2011. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts 6 years useful life back to the lessor at the end of the lease term. Adams uses the straight-line method of depreciation for 5000 residual value all of its plant assets. Adams’s incremental borrowing rate is 10%, and the Lessor’s implicit rate is 10% borrowing rate unknown. Instructions (a) What type of lease is this? Explain. 5 years 83% Capital Lease The lease term is over 75% of the machines life. (b) Compute the present value of the minimum lease payments. 9968 annual pmts 4.16986 41565.1645 $41,565.16 (c) Prepare all necessary journal entries for Adams for this lease through January 1, 2012. 1/1/2010 Capital Lease $41,565.16 Lease Liability $41,565.16 Lease Liability $9,968.00 Cash $9,968.00 12/31/2010 Depreciation Expense $8,313.03 $41,565.16 5 $8,313.03 Accumulated Depreciation - Capital Lease $8,313.03 Interest Expense $3,159.72 $41,565.16
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This note was uploaded on 01/20/2012 for the course ACCOUNTING 101 taught by Professor Dubai during the Spring '11 term at Abu Dhabi University.

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