Question

A

On January 1, 2017, Oriole Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Oriole to make annual payments of $8,317 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,300 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Oriole uses the straight-line method of depreciation for all of its plant assets. Oriole's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown. Click here to view factor tables 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

B

Prepare all necessary journal entries for Oriole for this lease through January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.)

Answer 1

solution a) present value of the minimum tease payments = 8310 X 4-16986 = 34681 . Date Debit Gedit Jan 1, 2017 Account title & Explanation Leased equipment Lease Leability 34681 34681 Jan 1, 2017 8317 Lease liability Cash 8319 Dec 31, 2017 6936 Depreciation expense [3468115 Accumulated Depreciation - Capital heases 6936 Dec 31, 2017 2636 Interest experse [34681 -93177x 104% Interest payable 2636 Jan 1, 2018 lease Liability Interest payable Cash 5681 2636 8317