Mighty Inc. leases equipment from Equity Leasing with a five-year non-cancelable lease on January 1, 2021 under the following terms: Five payments of $26,379.74 (a 9% implicit rate which is known to Mighty) due at the end of each year.The payments were calculated based on the fair value (which is also Equity’s book value) of the equipment.The lease is nonrenewable and the equipment revers to Equity at the end of the lease term.The equipment has a six-year economic life. What type of lease is this to Equity Leasing?Make the journal entry that Equity would make to record this lease on January 1, 2021.Make the journal entry that Mighty would make to record the second payment on December 31, 2022.

(1) This is capital leasing because the equipment is required for the operations of the company and the equipment is a capital. (2) Journal entry: =PV(rate,nper,pmt,fv,type) =PV(9%,5,-26379.74,0,0) =$102,607.99

Answered: Mighty Inc. leases equipment from…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mighty Inc. leases equipment from Equity Leasing with a five-year non-cancelable lease on January 1, 2021 under the following terms:

Five payments of $26,379.74 (a 9% implicit rate which is known to Mighty) due at the end of each year.
The payments were calculated based on the fair value (which is also Equity’s book value) of the equipment.
The lease is nonrenewable and the equipment revers to Equity at the end of the lease term.
The equipment has a six-year economic life.

What type of lease is this to Equity Leasing?
Make the journal entry that Equity would make to record this lease on January 1, 2021.
Make the journal entry that Mighty would make to record the second payment on December 31, 2022.

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