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Francisco leased equipment from Julio on December 31,2021. The lease is 10 year lease with annual...

Francisco leased equipment from Julio on December 31,2021. The lease is 10 year lease with annual payments of $150,000 due on December 31 of each year beginning December 31,2021. Julio originally purchased equipment on January 1, 2021 for $1,200,000 and depreciates equipment on a straight line basis over its estimated life of 12 years. Francisco's incremental borrowing rate is 12 % for this type of lease. The implicit rate of 10% is known by the lessee. What should be the balance in Francisco lease liability at December 31,2022?

a) Calculate PV of minimum lease payment?

b) Prepare JE recorded by Francisco and Julio on December 31,2021?

c) Prepare JE recorded by Francisco and Julio on December 31,2022?

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Answer #1
A lessee Discounts the lease payments using the interest rate implicit in the case if it can be readily determined.Otherwise, the lessee uses its incremental borrowing rate
Pv of Minimum payment lease =150000* PVAF(10%,10years)
=150000*6.144567
=921685.066
Journal Entries
Fransico Julio
Date Particulars Dr. Cr. Date Particulars Dr. Cr.
31.12.2021
Leased Equipment A/c 921685.1 31.12.2021 Deprecitaion 120000
To Bank 150000 To Equipmemt 120000
To Julio 771685.1
Bank 150000
31.12.2022 Interest Paybales 77168.5 To Fransico 150000
To Julio 77168.5
31.12.2022
Julio 150000 Deprecitaion 120000
To Bank 150000 To Equipmemt 120000
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