Question

intermediate 2 Accounting

• Total package of equipment leased has a fair market value of $4,800,000
• Lessor management statued that they used a rate of return of 6% for their calculations, based on an eightyear term and a guaranteed minimum value for the equipment at the termination of the lease of $600,000
• First payment of $672,030 was paod on July 2 when the lease was signed, with subsequent payments due on July 1^st each year
• Lease payments are included in operating expenses by Appexia as they are paid
• Appexia management believes that, at a minimum, at the termination of these lease the equipment could be sold for an expected value of $440,000. Appexia uses the straightline method of depreciation for its property, plant, and equipment

Journal Entries and Calculations

Answer 1

ANSWER

CALCULATIONS

YEAR	LEASE PAYMENTS	DISCOUNTING FACTOR @6%	PRESENT VALUE
1	$672,030	0.943	$633724.29
2	$672,030	0.890	$598106.7
3	$672,030	0.840	$564505.2
4	$672,030	0.792	$532247.76
5	$672,030	0.742	$498646.26
6	$672,030	0.705	$473781.15
7	$672,030	0.665	$446899.95
8	$672,030	0.627	$421362.81
	NET PRESENT VALUE OF EQUIPMENT		$4,169,274

JOURNAL ENTRIES

date	particular	debit	credit
1	equipment A/C DR	$4,169,274
	To lessor A/C		$4,169,274
	Being present value of equipment brought by leasing
2	lessor A/C DR	$672,030
	TO Bank A/C		$672030
	( IST YEAR LEASE PAYMENT)
3	DEPRECIATION A/C DR	$466159
	TO EQUIPMENT A/C		$466159

BEING DEPRECIATION ON EQUIPMENT

CALCULATION FOR DEPRECIATION

4169274-44000/8=466159.25

journal entries same as above to the subsequent years expect 1 st entry