Question

On December 31, 2016, Larkspur Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Larkspur to make annual payments of $9,399 at the beginning of each year, starting December 31, 2016. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Larkspur uses the straight-line method of depreciation for all of its plant assets. Larkspur’s incremental borrowing rate is 6%, and the lessor’s implicit rate is unknown. Present Value of lease payments is 41968

Prepare all necessary journal entries for Larkspur for this lease through December 31, 2017. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

Answer 1

page-01 4nwell Given present value & lease payment = 41968 Required journal entries for larkspur for lease through Decembe- 31 2017 DATE PARTICULARS DEBUT CREDIT 31.12.16 41968 $41968 $ 9399 lease equipment lease liability lease liability Cash depreciation expense accumulated depreciation - capital (41968-5) = $ 8393 $9399 12/31/17 $ 8393 Meases $ 8393 $1954 31/12/17 interest expense interest payable (441968 – $9399)x0.06] $1954 31/12/17 leave liability (9399-1954)_ interest payable $7445 $1954 Cash . [&4445+1954) $9399