payments.) c. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2021.
Ludwick Steel SA, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2019. Annual rental payments of €40,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Ludwick's incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by the lessor. At the end of the lease, Ludwick has the option to buy the equipment for €5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no residual value. Ludwick uses the straight-line method of
Present value of an annuity-due of 1 for 5 periods at 8% is 4.31213.
Present value of an annuity-due of 1 for 5 periods at 6% is 4.46511.
Present value of a single-sum of 1 for 5 periods at 8% is 0.68058.
Instructions
a. Prepare the journal entries that Ludwick should record on December 31, 2019.
b. Prepare the
c. Prepare the journal entry or entries, with explanations, that Ludwick should record on December 31, 2021.
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