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On January 1, 2017, Sheffield Company contracts to lease equipment for 5 years, agreeing to make a payment of $109,913 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $466,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Sheffield’s incremental borrowing rate is 6%, and the implicit rate in the lease is 9%, which is known by Sheffield. Title to the equipment transfers to Sheffield at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

SHEFFIELD COMPANY Balance Sheet (Partial) December 31, 2017 Assets Noncurrent Assets Right-of-Use Asset 279600 Liabilities Current Liabilities Lease Liability 77865 Noncurrent Liabilities Lease Liability 278222

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Lessee Year Year for discounting Annual Lease Installments paid at the beginning of the year PV factor @9% Present Value of Min lease Value at which to be recorded as asset by leasee is lower of FMV or NPV 2 4 5 0 2 4 109,913 1.00000 109,913 109,913 0.91743 100,837 109,913 0.84168 92,512 109,913 0.77218 84,873 109,913 0.70843 77,866 ents 466,000 466,000 Present value of minimum lease payments 466,000 Repayment Schedule Reduction Annual Payment Charg Principal Outstanding Finance Quarter Amount Liability Jan 1, 2017 Jan 1, 2017 Jan 1, 2018 Jan 1, 2019 Jan 1, 2020 Jan 1, 2021 109,913 109,913 109,913 109,913 109,913 549,565 109,913 77,865 84,873 92,512 100,837 83,565466,000 466,000 356,087 278,222 193,349 100,837 77,865 32,048 25,040 17,401 9,076 Lessee Books- General Journal Jan 1, 2017 Right-of-Use Asset Lease Liabilit Debit Credit 466,000 466,000 To record the lease Lease Liabilit Cash 109,913 109,913 To record first lease ent Dec 31, 2017 Interest Expense Lease Liabilit To record interest.) 32,048 32,048 Liabilties Current Liabilities Lease Liabili Non Current Liabilities Lease Liabili 109.913 (includes both Interest and lease ent due 278,222

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