Question 5 Telephone Limited signed a contract with Machinery Leasing Company at Ist January 2020 to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the beginning of cach ycar with an interest rate of 15%. The yearly rental payment includes S30,000 of executory costs related to insurance on the machine. The executory costs of S30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company is 31 of December. Required (Round all numbers to the nearest dollar) a) Discuss the nature of this lease to Telephone Limited. b) Discuss the nature of this lease to Machinery Leasing Company. c) Calculate the present value of the minimum lease payment. d) Prepare the journal entries for Telephone Limited in 2020. b) Prepare the journal entrices for Machinery Leasing Company in 2020.
Question 5 Telephone Limited signed a contract with Machinery Leasing Company at Ist January 2020 to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the beginning of cach ycar with an interest rate of 15%. The yearly rental payment includes S30,000 of executory costs related to insurance on the machine. The executory costs of S30,000 are paid to the lessor each year. There is an option to purchase the machine at the end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a guaranteed residual value of $20,000. Both companies adopt straight-line depreciation method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10, i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company is 31 of December. Required (Round all numbers to the nearest dollar) a) Discuss the nature of this lease to Telephone Limited. b) Discuss the nature of this lease to Machinery Leasing Company. c) Calculate the present value of the minimum lease payment. d) Prepare the journal entries for Telephone Limited in 2020. b) Prepare the journal entrices for Machinery Leasing Company in 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer required question from a,b,c,d, and e
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Transcribed Image Text:Question 5
Telephone Limited signed a contract with Machinery Leasing Company at 1st January 2020
to lease a machine. The agreement consists in 10 equal annual payments of $300,000 at the
beginning of each ycar with an interest rate of 15%. The yearly rental payment includes
S30,000 of executory costs related to insurance on the machine. The executory costs of
S30,000 are paid to the lessor each year. There is an option to purchase the machine at the
end of the lease term for $50,000. The machine has an estimated useful life of 14 years and a
guaranteed residual value of $20,000. Both companies adopt straight-line depreciation
method for all items of PPE. Consider a PVIF (n=10, i=15%) of 0.2472 and PVIFA (n=10,
i=15%) of 5.0188. The balance day for Telephone Limited and Machinery Leasing Company
is 31 of December.
Required (Round all numbers to the nearest dollar)
a) Discuss the nature of this lease to Telephone Limited.
b) Discuss the nature of this lease to Machinery Leasing Company.
c) Calculate the present value of the minimum lease payment.
d) Prepare the journal entries for Telephone Limited in 2020.
k) Prepare the journal entries for Machinery Leasing Company in 2020.
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