# Mays company has a machine with a cost of 400000

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85. Mays Company has a machine with a cost of \$400,000 which also is its fair market value on the date the machine is leased to Park Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of \$40,000. If the lessor's interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be a. \$92,361. b. \$82,465. c. \$78,180. d. \$66,667. 21 - 20

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Accounting for Leases 86. On January 2, 2011, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of \$40,000 each, payable beginning December 31, 2011. Brick Co. agrees to guarantee the \$25,000 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, 2011 to record the first lease payment? 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 87. On January 2, 2010, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of \$40,000 each, payable beginning December 31, 2010. Brick Co. agrees to guarantee the \$25,000 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, 2011 to record the second lease payment? 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 21 - 21
88. Geary Co. leased a machine to Dains Co. Assume the lease payments were made on the basis that the residual value was guaranteed and Geary gets to recognize all the profits, and at the end of the lease term, before the lessee transfers the asset to the lessor, the leased asset and obligation accounts have the following balances: Leased equipment under capital lease \$400,000 Less accumulated depreciation--capital lease 384,000 \$ 16,000 Interest payable \$ 1,520 Obligations under capital leases 14,480 \$16,000 If, at the end of the lease, the fair market value of the residual value is \$8,800, what gain or loss should Geary record?

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