Question

Riverbed Corporation enters into a 7-year lease of equipment on January 1, 2017, which requires 7 annual payments of $41,100 each, beginning January 1, 2017. In addition, Riverbed guarantees the lessor a residual value of $18,400 at lease-end. The equipment has a useful life of 7 years.

Prepare Riverbed’ January 1, 2017, journal entries assuming an interest rate of 10%.

Answer 1

Solution:

Present value of minimum lease payment = Present value of annual payment + Present value of guaranteed residual value

= $41,100 * Cumulative PV factor at 10% for 7 periods of annuity due + $18,400 * Cumulative PV factor at 10% for 7th period

= $41,100 * 5.35526 + $18,400 * 0.51316

= $220,101 + $9,442 = $229,543

Journal Entries - Riverbed Corporation
Date	Particulars	Debit	Credit
1-Jan-17	Equipment Dr	$229,543.00
	To Lease Payable		$229,543.00
	(To record purchase of equipment on lease)
1-Jan-17	Lease payable Dr	$41,100.00
	To Cash		$41,100.00
	(To record lease payment)