At the beginning of 2021, VHF Industries acquired a machine with a fair value of $6,700,460 by signing a three-year lease. The lease is payable in three annual payments of $2.6 million at the end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What is the effective rate of interest implicit in the agreement? 2-4. COMPUTE the lessee’s journal entries at the beginning of the lease, the first lease payment at December 31, 2021 and the second lease payment at December 31, 2022. 5. aSSUME the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 7%. Prepare the lessee’s entry at the beginning of the lease.
At the beginning of 2021, VHF Industries acquired a machine with a fair value of $6,700,460 by signing a three-year lease. The lease is payable in three annual payments of $2.6 million at the end of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1. What is the effective rate of interest implicit in the agreement?
2-4. COMPUTE the lessee’s
5. aSSUME the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 7%. Prepare the lessee’s entry at the beginning of the lease.
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