70.2K

Verified Solution

Link Copied!

Sunland Incorporated leases a piece of machinery to Marigold Company on January 1, 2020, under the following terms.

1.		The lease is to be for 4 years with rental payments of $10,496 to be made at the beginning of each year.
2.		The machinery has a fair value of $56,388, a book value of $42,080, and an economic life of 10 years.
3.		At the end of the lease term, both parties expect the machinery to have a residual value of $21,040. To protect against a large loss, Sunland requests Marigold to guarantee $14,530 of the residual value, which Marigold agrees to do.
4.		The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature.
5.		The implicit rate is 5%, which is known by Marigold.
6.		Collectibility of the payments is probable. Prepare the journal entries for Marigold for the year 2020. (Credit account titles are automatically indented when the 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. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.) Please explain how you got the answer

Answer & Explanation Solved by verified expert

See Answer