Question

Exercise 21-1 (Part Level Submission) On January 1, 2017, Waterway Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Waterway to make annual payments of $7,909 at the beginning of each year, starting January , 2017. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Waterway uses the straight-line method of depreciation for all of its plant assets. waterway's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. ? (b) ?Your answer is correct. 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 32446 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT VIDEO: SIMILAR EXERCISE By accessing this Question Assistance, you will learn while you earn points based on the Point Potential Policy set by your instructo Attempts: 1 of 3 used

Answer 1

SOLUTION

Date	Account titles and Explanation	Debit ($)	Credit ($)
1.1.2017	Leased Equipment	32,446
	Lease Liability		32,446
	(To record the lease)
	Lease Liability	7,909
	Cash		7,909
	(To record first payment)
12.31.2017	Depreciation Expense ($32,446 / 5 years)	6,489
	Accumulated Depreciation - Capital Leases		6,489
	(To record depreciation)
	Interest Expense	2,699
	Interest Payable ($32,446 - $7,909) * 11%		2,699
	(To record interest)
1.1.2018	Lease Liability	5,210
	Interest Payable	2,699
	Cash		7,909
	(To record second payment)