On January C Company signs a year noncancelable lease agreement to lease a machine to
Company. The following data pertain to this agreement.
You will be required to show your calculations on the exam.
a Payments of $ are due on Dec. of each year. The first payment in advance is paid on Jan.
b The fair value and the cost of the machine to C Company on Jan is $
P Company has the BARGAIN PURCHASE OPTION to purchase the machine for $ upon the end of the lease.
c P and C company use the straightline method to depreciate equipment which in this case has a year economic
life. If not exercised the machine reverts back to the lessor at the end of the lease.
d Cs implicit rate is and the salvage value is $ and is guaranteed by lessee.
Instructions:
Is this a capital lease or operating lease? Show results for each of capitalization tests.
Instructions: Prepare journal entries on the books of the lessee through
The accounting period of ends on December
