On January 1, 2017, Martinez Corporation signed a 5-year noncancelable lease for a machine. The terms...
On January 1, 2017, Martinez Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Martinez to make annual payments of $8,215 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Martinez uses the straight-line method of depreciation for all of its plant assets. Martinez’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown
| The present value of the minimum lease payments |
Prepare all necessary journal entries for Martinez for this lease through January 1, 2018. |
Homework Answers
| a) Present value of minimum lease payment | ||||
| annual payment*present value of annuity factor | ||||
| minimum lease payment = 8215*4.16986 =34255 | ||||
| Journal entries | ||||
| date | Particulars | Debit | Credit | |
| 01-Jan | lease equipment | 34255 | ||
| lease liability | 34255 | |||
| 01-Jan | lease liability | 8215 | ||
| cash | 8215 | |||
| 31-Dec | depreciation exp (34255/5) | 6851 | ||
| accumulated depreciation-capital lease | 6851 | |||
| 31-Dec | interest expense(34255-8215)*10% | 2604 | ||
| interest payable | 2604 | |||
| 01-01-2018 | lease liablity | 5611 | ||
| interest payable | 2604 | |||
| cash | 8215 | |||
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