On January 1, 2017, Metlock Corporation signed a 3-year noncancelable lease for several computers. The terms of the lease called for Metlock to make annual payments of $4,500 at the beginning of each year, starting January 1, 2017. The computers have an estimated useful life of 3 years and a $480 unguaranteed residual value. The computers revert back to the lessor at the end of the lease term. Metlock uses the straight-line method of depreciation for all of its property, plant, and equipment. Metlock’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown. Prepare all necessary journal entries for Metlock 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.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title To record lease enter a debit amount enter a credit amount enter an account title To record lease enter a debit amount enter a credit amount (To record lease) enter an account title To record rental payment enter a debit amount enter a credit amount enter an account title To record rental payment enter a debit amount enter a credit amount (To record rental payment) choose a transaction date enter an account title To record depreciation enter a debit amount enter a credit amount enter an account title To record depreciation enter a debit amount enter a credit amount (To record depreciation) enter an account title To record interest enter a debit amount enter a credit amount enter an account title To record interest enter a debit amount enter a credit amount (To record interest) Jan. 1, 2018 enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount eTextbook and Media

On January 1, 2017, Metlock Corporation signed a 3-year noncancelable lease for several computers. The terms of the lease called for Metlock to make annual payments of $4,500 at the beginning of each year, starting January 1, 2017. The computers have an estimated useful life of 3 years and a $480 unguaranteed residual value. The computers revert back to the lessor at the end of the lease term. Metlock uses the straight-line method of depreciation for all of its property, plant, and equipment. Metlock’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown. Prepare all necessary journal entries for Metlock 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.) Date Account Titles and Explanation Debit Credit choose a transaction date enter an account title To record lease enter a debit amount enter a credit amount enter an account title To record lease enter a debit amount enter a credit amount (To record lease) enter an account title To record rental payment enter a debit amount enter a credit amount enter an account title To record rental payment enter a debit amount enter a credit amount (To record rental payment) choose a transaction date enter an account title To record depreciation enter a debit amount enter a credit amount enter an account title To record depreciation enter a debit amount enter a credit amount (To record depreciation) enter an account title To record interest enter a debit amount enter a credit amount enter an account title To record interest enter a debit amount enter a credit amount (To record interest) Jan. 1, 2018 enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 2018 enter a debit amount enter a credit amount eTextbook and Media

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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Date	Account Titles and Explanation	Debit	Credit
choose a transaction date	enter an account title To record lease	enter a debit amount	enter a credit amount
	enter an account title To record lease	enter a debit amount	enter a credit amount
	(To record lease)
	enter an account title To record rental payment	enter a debit amount	enter a credit amount
	enter an account title To record rental payment	enter a debit amount	enter a credit amount
	(To record rental payment)
choose a transaction date	enter an account title To record depreciation	enter a debit amount	enter a credit amount
	enter an account title To record depreciation	enter a debit amount	enter a credit amount
	(To record depreciation)
	enter an account title To record interest	enter a debit amount	enter a credit amount
	enter an account title To record interest	enter a debit amount	enter a credit amount
	(To record interest)
Jan. 1, 2018	enter an account title for the journal entry on January 1 2018	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on January 1 2018	enter a debit amount	enter a credit amount

eTextbook and Media

Expert Solution

Step 1

1) Incremental Rate of Borrowing = 11%

PV of Minimum Lease Payments when annuity due = Annul lease payments * Present value of annuity due factor

= $4500 * PVAD(3 years,11%]

= $4500 * 2.71252

= $12,206.34

Formula: P = PMT * [1 – [ (1 / 1+r)^n] / r]

As we can observe, the lease is a finance lease as its term covers more than 75% of its economic life (3 of 3 years).

Under Finance Lease, Lease Asset would be recognised at its fair value along with lease payable on the liabilities side.
The leased asset shall be recorded at the present value of MLP (or fair value if it is lower)

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