Question

Technoid Inc. sells computer systems. Technold leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was 512 million. This noncancelable lease had the following terms: • Lease payments: $7777? semiannually, first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025 • Lease term: five years (10 semiannual payments) • There is a residual value of $500,000. And the lessee guaranteed a residual value of $600,000 • Economic life of equipment: six years. • Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. • Fair value of the computers at January 1, 2021: $20 million Required: A Calculate the lease payment? Show computations. B. Make the journal entry by lessee on date of lease inception

Answer 1

Answer A. Calculate the lease Fair value of the = $20 million Computers Implicit Interest = 5% semiannually Pate & Lessee Incremental borrowing rate Lease term = 5 years x2 = 10 semiannual payments Guranteed residual = $600000 value (GRY) Present Value of Guranteed = $600000 x PVF (54,10 Residual value $ 600 000 X 0.61391325351 = $368348 Present value of lease = Fair value of - present value of payments Leased Asset Guranteed Residual Value = $20000000 - $368348 = $19631652 → Lease payments = present Value of Lease payments present Value Annuity (5%, 10 Factox CPVAF Lease payments = $19631652 9.20782167548

>B. Make the Journal entry by lessee on date of lease inception :- Journal Entry Date Account Title and Debit Credit Explanation $20000000 $20000000 2021 Jan.l. | Leased Equipments Lease Liability (Torecord Lease agreement at the date of lease inception Jan.l. Lease Liability Cash CTo record first lease payment at the date of lease inception $2132063 $2132063