NSTRUCTION 1. Compute the amount to be capitalized as an asset for the lease of the milling machine 2. Prepare a schedule that shows the computation of the interest expense for each period 3. Give the journal entries for goodrigde’s books for the first two years of the lease
Entries for capital lease- lessee
Goodridge has a long-standing policy of acquiring company equipment by leasing. Early in 2011, the company entered into a lease for a new milling machine the lease stipulates that annual payment will be made for five years. The payments are to be made in advance on December 31 of each year. At the end of the five years, Goodridge's financial records show the incremental borrowing rate is to be less than the implicit interest rate. The estimated economic life of the equipment is 12 years. Goodridge uses the calendar year for reporting purposes and straight-line deprecation for other equipment. In addition, the following information about the lease is also available.
Annul lese payment - $ 55 000
Purchase option price- $ 25 000
The estimated fair value of machine after 5 years- $ 75 000
Incremental borrowing rate - 10%
Date of first payment Jan 1, 2011
INSTRUCTION
1. Compute the amount to be capitalized as an asset for the lease of the milling machine
2. Prepare a schedule that shows the computation of the interest expense for each period
3. Give the
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