On January 1, 2020, Sitra Company loased equipment from National Corporation Lease payments are $100,000, payablo annusty beginning on January 1, 20 years. The lease is non cancelable The following information pertains to the agreement 1. The fair value of the equipment on January 1, 2020 is $850,000 2. The estimated economic Me of the equipment was 25 years on January 1, 2020 with guarantood residual value of $25,000 3 The lease is non-renewable. At the termination of the lease, the equipment reverts to the lessor 4 The lessor's implicit rate is 10% which is known to Sitra Stra's incremental borrowing rate is 12% (The PV of $1 for 20 periods at 10% is 0.14864 and the PV for an ordinary annuity of $1 for 20 periods at 10% is 8.51356) s Sitra uses straight line method for depreciation Instructions: A) Compute the present value of minimum lease payments 3) Prepare all necessary journal entries on the lessee's books for the year 2020

On January 1, 2020, Sitra Company loased equipment from National Corporation Lease payments are $100,000, payablo annusty beginning on January 1, 20 years. The lease is non cancelable The following information pertains to the agreement 1. The fair value of the equipment on January 1, 2020 is $850,000 2. The estimated economic Me of the equipment was 25 years on January 1, 2020 with guarantood residual value of $25,000 3 The lease is non-renewable. At the termination of the lease, the equipment reverts to the lessor 4 The lessor's implicit rate is 10% which is known to Sitra Stra's incremental borrowing rate is 12% (The PV of $1 for 20 periods at 10% is 0.14864 and the PV for an ordinary annuity of $1 for 20 periods at 10% is 8.51356) s Sitra uses straight line method for depreciation Instructions: A) Compute the present value of minimum lease payments 3) Prepare all necessary journal entries on the lessee's books for the year 2020

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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On January 1, 2020, Sitra Company leased equipment from National Corporation. Lease payments are $100,000, payable annually beginning on January 1, 2020 for 20 years. The lease is non-cancelable. The following information pertains to the agreement: 1. The fair value of the equipment on January 1, 2020 is $850,000. 2. The estimated economic life of the equipment was 25 years on January 1, 2020 with guaranteed residual value of $25,000. 3. The lease is non-renewable. At the termination of the lease, the equipment reverts to the lessor. 4. The lessor's implicit rate is 10% which is known to Sitra. Sitra's incremental borrowing rate is 12% (The PV of $1 for 20 periods at 10% is 0.14864 and the PV for an ordinary annuity of $1 for 20 periods at 10% is 8.51356). 5. Sitra uses straight-line method for depreciation. Instructions: A) Compute the present value of minimum lease payments. B) Prepare all necessary journal entries on the lessee's books for the year 2020.