Question

On January 1, 2017, Bramble Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Bramble to make annual payments of $8,176 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Bramble uses the straight-line method of depreciation for all of its plant assets. Bramble's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown Click here to view factor tables Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 58,971.) The present value of the minimum lease payments Prepare all necessary journal entries for Bramble for this lease through January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit (To record the lease.) (To record first payment.) (To record depreciation.)

Answer 1

Lease payment Annuity factor @ 10%, 5 years= 8176 4.16987 34,092.86 Year 1 Year 2 Year 3 Year 4 Year 5 PV Factor@ 10% 1.00000 0.90909 0.82645 0.75131 0.68301 4.16987 Value of asset = $ 34,092.86 Useful life 5 years Depreciation per year = $ 6,818.57 Journal entry - You can round the amount if required Account title and explanation Debit Date Credit $ 34,092.86 01-01-2017 Leased equipment under capital lease lease liability (To record lease of asset) $ 34,092.86 $ 8,176.00 01-01-2017 lease liability Cash (To record lease payment) $ 8,176.00 S 6.818 57 (34092.86/5) $ 6,818.57 $ 2,591.69 (34092-8176) x10% $ 2,591.69 31-12-2017| depreciation expense Accumulated depreciation -capital lease (To record depreciation) 31-12-2017 Interest expense interest payable (to record lease payment) 01-01-2018 Interest payable lease liability Cash (To record cash payment) $ $ 2,591.69 5,584.31 (8176 - 2591.69) $ 8,176.00