Communication S.A. signed a contract with Satellite Leasing Corporation at 1st January 2019 to lease a machine. The agreement consists in nine equal annual payments of $18,000 at the beginning of each year with an interest rate of 5%. The yearly rental payment includes $3,000 of executory costs related to taxes on the machine. There is an option to purchase the machine at the end of the lease term for $5,000. The machine has an estimated useful life of 10 years, no residual value and uses straight line depreciation method. Consider a PVIF (n=9, i=5%) of 0.6446 and PVIFA (n=9, i=5%) of 7.1078. The accounting balance day for Communication S.A. is 31 of December. Required a) Calculate the present value of the minimum lease payment. b) Prepare the journal entries for the lessee to reflect the signing of the lease agreement, payment and expenses for the year 2019. c) Prepare the journal entries for the lessor to reflect the signing of the lease agreement, payment and revenues for the year 2019. The lessor's cost is $80,000.
Communication S.A. signed a contract with Satellite Leasing Corporation at 1st January 2019 to lease a machine. The agreement consists in nine equal annual payments of $18,000 at the beginning of each year with an interest rate of 5%. The yearly rental payment includes $3,000 of executory costs related to taxes on the machine. There is an option to purchase the machine at the end of the lease term for $5,000. The machine has an estimated useful life of 10 years, no residual value and uses straight line depreciation method. Consider a PVIF (n=9, i=5%) of 0.6446 and PVIFA (n=9, i=5%) of 7.1078. The accounting balance day for Communication S.A. is 31 of December. Required a) Calculate the present value of the minimum lease payment. b) Prepare the journal entries for the lessee to reflect the signing of the lease agreement, payment and expenses for the year 2019. c) Prepare the journal entries for the lessor to reflect the signing of the lease agreement, payment and revenues for the year 2019. The lessor's cost is $80,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Communication S.A. signed a contract with Satellite Leasing Corporation at 1st January 2019 to lease
a machine. The agreement consists in nine equal annual payments of $18,000 at the beginning of each
year with an interest rate of 5%. The yearly rental payment includes $3,000 of executory costs related
to taxes on the machine. There is an option to purchase the machine at the end of the lease term for
$5,000. The machine has an estimated useful life of 10 years, no residual value and uses straight line
depreciation method. Consider a PVIF (n=9, i=5%) of 0.6446 and PVIFA (n=9, i=5%) of 7.1078. The
accounting balance day for Communication S.A. is 31 of December.
Required
a) Calculate the present value of the minimum lease payment.
b) Prepare the journal entries for the lessee to reflect the signing of the lease agreement, payment
and expenses for the year 2019.
c) Prepare the journal entries for the lessor to reflect the signing of the lease agreement, payment and
revenues for the year 2019. The lessor's cost is $80,000.
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